PPE

• Property, Plant and Equipment (PPE)

  Tangible assets used in business (production/supply of goods and services, for rental and for admin purposes), expected to be used for more than one year
• PPE


  • Bio Assets and Mineral Rights and Reserves are not PPE
  • Apply PAS 16 for PPE used to develop or maintain bio assets and mineral rights & reserves
• Recognition of PPE


  • Probable future economic benefits
  • Cost of the asset can be measured reliably
• Cost of PPE


  • Cost incurred to acquire/construct PPE
  • Cost incurred subsequently to add to, replace part of, or service it
• Spare parts & Servicing Equipment


  • Normally carried as inventory and expensed as consumed
  • If major spare parts and stand-by equipment, qualify as PPE if used for more than one year and depreciated over a time period not exceeding the useful life of related asset
• Safety and Environmental Equipment

  • Not directly increasing the future economic benefit of any existing PPE
  • Necessary to obtain the future economic benefit from the asset in EXCESS of what it could obtain if such equipment had not been acquired
  • Recognize as PPE
• Measurement at Recognition of PPE

  • Initially measured at COST
  • Purchase price including import duties and nonrefundable purchase taxes net of trade discount & rebates whether taken or not
  • Cost directly attributable to bringing the assets to the location and condition for it to be capable of operating
  • Initial estimate of costs of dismantling & removing the item & restoring the site on which it is located
• Modes of Acquisition


  • Acquisition on Cash Basis
  • Acquisition on Account
  • Acquisition on Installment Basis
  • Issuance of Share Capital
  • Issuance of Bonds Payable
  • Exchange
  • Trade in
  • Donation
  • Construction
• Acquisition on Cash Basis

  • Lump sum price
  • Cash price equivalent at recognition date plus directly attributable costs
  • Allocate based on relative fair value of assets acquired
• Acquisition on Account


  Invoice price minus discount (whether taken or not)
• Acquisition on Installment Basis

  • Cash price equivalent
  • If there is cash price given
  • No available cash price at cash price (if installment price > cash price, recognize as interest to be amortized over credit period
  • Present value of all payments using implied interest rate
• Issuance of Share Capital

  • Fair value of asset received
  • Fair value of the share capital
  • Par value/stated value of the share capital
• Issuance of Bonds Payable

  • Fair value of bonds payable
  • Fair value of asset received
  • Face value of bonds payable
• Exchange


  • With commercial substance (gain/loss fully recognized)
  • No commercial substance (no gain/loss)
• Trade in


  • Fair value approach
  • Trade in value approach (if FV of asset given can't be determined)
• Donation


  • From shareholders
  • From nonshareholders (if subsidy, if not subsidy with restriction)
• Construction


  Includes costs to comply with conditions and receive the grant
• Classifications of Government Grants

  • Grant related to asset
  • Grant related to income
• Accounting for Government Grants

  • Reason for grant
  • Pattern for Recognition of Income
• Presentation of Government Grant


  • If related to asset
  • If related to income
• Repayment of Government Grant

  • Due to noncompliance with conditions
  • Change in accounting estimate (prospectively)
• Grant of Interest-free Loan

  • Difference between face amount of the loan and the present value is recognized as discount on note payable and grant income to be amortized over the term of the loan using effective interest method
  • Interest expense (discount amortized) and grant income may be offset against the other (zero interest expense each year)
• Government Assistance


  • Action by the government to provide economic benefit specific to an entity or range of entities under certain criteria
  • No value can reasonably be placed upon government assistance such as free technical or marketing advices, provision of guarantee, government procurement policy that is responsible for a portion of the entity's sales
• Disclosures for Government Grants


  • Accounting policy adopted including method of presentation in FS
  • Nature and extent of grant recognized and indication of other forms of gov't assistance from which the entity has directly benefited
  • Unfulfilled conditions and other contingencies attaching to government assistance that has been recognized
• Borrowing Cost (PAS 23)


  Interests and other costs that an entity incurs in connection with borrowing funds
• Accounting for Borrowing Costs

  • If borrowing is directly attributable to the acquisition, construction, or production of a QUALIFYING ASSET, borrowing cost is capitalized as part of the cost of the asset (MANDATORY)
  • All other borrowing cost shall be expensed as incurred if NOT directly attributable to a qualifying asset
  • Excluded from capitalization are assets measured at FAIR VALUE, inventories produced in large quantities on a repetitive basis even if they take substantial period of time to get ready for sale, and assets that are ready for intended use or sale when acquired
• Qualifying Asset


  • An asset that necessarily takes a substantial period of time to get ready for its intended use such as manufacturing plant
  • Activities necessary to prepare asset encompass more than physical construction of the asset (includes technical and administrative work prior to commencement of physical construction such as drawing up plans and obtaining permits)
  • Merely holding the asset for use or development without any associated development activity does NOT QUALIFY for capitalization
• Suspension of Capitalization


  If due to temporary delay which is a necessary part of the process of getting an asset ready for its intended use, continue capitalization of borrowing costs
• Cessation of Capitalization


  Ceases when substantially all the activities necessary to prepare the asset are complete
• Assets measured at FAIR VALUE


  Such as bio asset
• Inventories


  Produced in large quantities on a repetitive basis even if they take substantial period of time to get ready for sale
• Qualifying Asset


  An asset that necessarily takes a substantial period of time to get ready for its intended use
• Manufacturing plant


  • Activities necessary to prepare asset encompass more than physical construction of the asset (includes technical and administrative work prior to commencement of physical construction such as drawing up plans and obtaining permits)
  • Merely holding the asset for use or development without any associated development activity does NOT QUALIFY for capitalization
• Suspension of Capitalization


  If due to temporary delay which is a necessary part of the process of getting an asset ready for its intended use, continue capitalization of borrowing costs (eg. Period of high water levels that delay the construction of a bridge if such high water level is common during construction period in the geographical region involved.)
• Disclosures


  • Amount of borrowing costs capitalized during the year
  • Capitalization rate used
• Segregation of qualifying assets from other assets in FS is NOT REQUIRED to be disclosed
• Land Account


  • Recognize as PPE if: Used as a plant site
  • Held definitely as a future plant site

  Other uses of land not recognized under PPE: For currently undetermined future use (investment property)

  • Held for long term capital appreciation (investment property)
  • Held for current sale by a real estate developer (inventory)
• Costs chargeable to land

  • Purchase price
  • Legal fees and other expenditures for establishing clean title
  • Broker's commission
  • Escrow fees
  • Fees for registration and transfer of title
  • Cost of relocation or reconstruction of property belonging to others in order to acquire possession
  • Mortgages, encumbrances, and interests on such assumed by the buyer
  • Unpaid taxes up to date of acquisition assumed by the buyer (in general, outright expense)
  • Cost of survey
  • Payments to tenants to vacate the LAND
  • Cost of permanent improvements such as cost of grading, leveling and landfill
  • Cost of option to buy the acquired land, If land is not acquired, cost of option is expensed
  • Special assessments made by gov't (increase the value of land)
• Land Improvements


  • If additions to cost not subject to depreciation, charge to land account

  If land improvements are depreciable, charge to land improvement such as: Fences

  • Water system
  • Drainage system
  • Sidewalks
  • Pavements
  • Cost of trees, shrubs and other landscaping

  Depreciate over their useful life
• Building Account (if purchased)

  • Purchase price
  • Legal fees and other expenses incurred in connection to the purchase
  • Unpaid taxes up to date of acquisition
  • Interest, mortgage, liens and other encumbrances on the building assumed by buyer
  • Payments to tenants to induce them to vacate building
  • Any renovating or remodeling costs incurred to put a building purchased in a condition suitable for its intended use