modyul 6

• Property, Plant and Equipment

  • also known as property assets, plants assets, or fixed assets
• IAS 16.6


  PPE are tangible items that are held for use in the production or supply of goods or services, for rental for others, or for administrative purposes
• Cost

  • amount of cash or cash equivalent paid or the fair value of the asset at the time of acquisition
• Fair value

  • price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
• Depreciable amount

  • cost of an asset less residual value
• Residual Value/Scrap Value/Salvage Value

  • estimated amount that an entity will obtain from the disposal of the asset expected at the end of its useful life
• Useful Life

  • the expected period to be available for use
• Depreciation

  • systematic allocation of the depreciable amount
• Carrying amount

  • amount at which an asset is recognized less accumulated depreciation and accumulated impairment losses
• Recognition (IAS 16.7-14)


  Cost of an item of PPE shall be recognized as asset if it is probable that future economic benefits will flow to the entity AND cost can be measured reliably
• Such costs includes

  1. costs incurred initially to acquire or construct a PPE
  2. costs incurred subsequently to add to, replace part of, or service it
• Component parts are required to be separately accounted for because they are likely to have different useful lives (e.g aircraft and its engine, frame and fittings)
• When each major inspection is performed, its cost is recognized in the carrying amount of the PPE as a replacement if recognition criteria are satisfied
• Parts of some items of PPE may require replacement at regular intervals and these replacements qualify for recognition as assets if recognition criteria are met
• Items such as spare-parts, stand-by equipment and servicing equipment are recognized in accordance with IAS 16. Otherwise, such items are classified as inventory
• IAS 16 does not prescribe what constitute an item of PPE. Judgment is required in applying the recognition critea
• Capitalized = Asset
• Cost of PPE that are capitalized

  1. purchase price (including import duties and non-refundable purchase taxes) after deducting trade discounts and rebates
  2. any costs attributable to bringing the asset to the location and condition
  3. initial estimate of the costs of dismantling and removing the item and restoring the site
  4. cash discount whether taken or not is deducted from the invoice price for purposes of valuing the asset
• Cost of land includes the purchase price plus any expenditures needed to prepare the land for its intended use
• Expenditures needed to prepare the land for its intended use

  1. closing costs to get a new title
  2. back taxes, liens, mortgages, encumbrances, interest or other obligations
  3. razing old buildings
• Land: Special Classifications

  1. investment properties
  2. inventory
• Land for Investment Properties

  • held for currently undermined use and for long-term capital appreciation or for rentals
• Land for Inventory

  • held for current sale by real estate developer
• Cost of land improvements must be separated from the cost of land because land has an indefinite life
• Land Improvements

  1. drainage systems
  2. driveways
  3. fences
  4. landscaping
  5. light structures
  6. on-property sidewalks
  7. parking lots
  8. pavements
  9. private roads
  10. sprinkler systems
  11. water system
• Building (if acquired)

  • cost of building is the purchase price plus any expenditures needed to prepare the building
• expenditures needed to prepare the building (if acquired)

  1. closing costs
  2. reconditioning costs to suit the needs of the new owner
  3. back taxes
  4. liens, mortgages, encumbrances, interest or other obligations
  5. payments to tenants to vacate the building
• Building (if constructed)

  1. architect's fees and other professional fees
  2. building permits and fees
  3. excavation cost
  4. construction costs (labor, materials, overhead)
  5. interest on construction loans
  6. insurance during construction (less any refund)
  7. cost of temporary buildings, fences, quarters)
  8. cost of service equipment made as permanent part of the building
  9. cost of land improvements, if part of blue print
  10. safety inspection fees
  11. demolition of old buildings
  12. payment to tenants
• Bearer Plants

  • a living plant used in the production or supply of agricultural produce expected to bear produce for more than 1 period
• Measurement of Cost

  1. cash price
  2. fair value
• Cash Price

  • cost of the PPE is the cash price equivalent at the recognition date
• If one or more items of PPE is exchanged for a non-monetary asset or a combination of both, it is measured in FAIR VALUE
• PPE cannot be measured in fair value if:

  1. exchange transaction lacks commercial substance
  2. fair value of neither the asset received nor the asset given up is reliably measurable
• The fair value of an asset is reliably measurable if:

  1. variability in the range of reasonable fair value measurements is not significant for that asset
  2. probabilities of the various estimates can be reasonably assed and used when measuring fair value
• If an entity is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure the asset received UNLESS the fair value of the asset received is MORE evident
• Different methods of acquiring plant assets

  1. acquisitions by purchase
  2. non-cash acquisitions
  3. acquisitions by exchanges
• Acquisitions by purchase

  1. cash purchase
  2. purchase on account
  3. lease
• Non-cash acquisitions

  1. equity and debt securities
  2. donations
  3. trade-in
  4. government grants
• Asset is recorded at fair value in the order of priority

  1. fair value of the asset received
  2. fair value of the capital stock or bonds payable
  3. par value of the capital stock or face value of the bonds payable
• Donations are valued at their fair values