I.

Introduction

The Property, Plant, and Equipment (PPE) has been alluded to as the physical

capital. In financial aspects, PPE are resources that generates income for most

organization. These advantages are obtained on the grounds that financial

advantages will be gotten from it. Companies like Max's Group Inc. (MGI) which

made out of Max's, Yellow Cab Pizza, Teriyaki Boy, Pancake House, Dencio's Food

Specialists, and so on depend on property, plant, and equipment to offer their items

which are basically on food where the vast majority appreciate. Everywhere we go we

see a ton of food establishments, we see them on shopping centers, in business

structures, in favor of the roads, even within air terminals, yet this research study will

mainly concentrate on the Property, Plant, and Equipment they possess and

furthermore this study means to know whether the accounting principles in regards to

Property, Plant and Equipment are useful in keeping up corporate administration with

Max's Group Inc. The researcher trusts that the Max's Group Inc. is the company as

a result of their broad measures of property, plant, and hardware which is appropriate

for this investigation.

1
II. Company Information

Max’s Group, Inc. is the Philippines largest operator of casual dining restaurants

with 574 locations in the Philippines and 49 branches overseas as of year-end 2016.

Validity, insightful, and pleasure. These are the primary elements of the formula for

the accomplishment of Max's Group, Inc (MGI). Max’s Group Inc. Doing business

under the names and styles of Pancake House; Maple; Dencio’s; Kabisera ng

Dencio’s; and Singkit (the Former Parent Company) was incorporated in the

Philippines and registered with the Securities and Exchange Commission (SEC) on

March 1, 2000. Its shares are publicly traded in the Philippine Stock Exchange (PSE).

The Parent Company and its subsidiaries (collectively referred to as “the Group”) are

primarily engaged in the business of catering foods and establishing, operating and

maintaining restaurants, coffee shops, refreshments parlors and cocktail lounges. On

December 20, 2013, Pancake House Holdings, Inc. (PHHI), the previous ultimate

parent company, agreed to sell to the 10 companies which belong to the Max’s Group

(Max’s Entities) all of its shares in the Parent Company at a price of P15 per share.

From the Organization's modest beginnings with the principal Max's Restaurant

in Scout Tuason, Quezon City in 1945, the Brand is presently a standout among the

most famous foundations in the Philippines with more than 160 stores across the

country. It has likewise achieved its storied legacy with abroad markets with 25

branches over the United States, Canada, United Arab Emirates, Qatar, furthermore,

Kuwait With the strategic acquisition of the Pancake House Group in 2014, MGI has

established its position of being a market pioneer by turning into the nation's biggest

largest operator of casual dining restaurants. The consideration of comparably

2
cherished brands, for example, Pancake House and Yellow Cab Pizza to its portfolio

has added profundity and measurement to its suggestion, helping the Company

connect with a more extensive scope of clients by guaranteeing that there is a brand

significant to the requirements of everybody.

In the seven decades of the Company's existence, each Filipino has had their

own particular story to tell about their most loved Max's Group image. From first

dates to bubbly wedding gatherings, birthday parties with classmates to praising

organization turning points, family suppers with the children to genial social

gatherings, our brands' value is as solid as the recollections they have made. More

than the considerable nourishment and keen administration, it's the bonds

manufactured inside MGI stores that transform all clients into the Group's greatest

fans.

3
III. Max’s Group Inc. Consolidated Statements of Financial Position

4
5
IV. Accounting Standards

The International Accounting Standards (IAS), particularly IAS 16 Property, Plant,

and Equipment, characterizes property, plant, and equipment as tangible assets that

are held by an entity for use in the creation or supply of products, or administrations,

for rental to others, or for regulatory purposes. These benefits are relied upon to be

utilized for a time of over a year. IAS 16 Property, Plant, and Equipment outline the

accounting treatment for most sorts of property, plant, and equipment. Property, plant,

and equipment is at first measured at its cost, along these lines measured either

utilizing a cost or revaluation model and depreciated with the goal that its depreciable

amount is allotted on an orderly premise over its valuable life. Property, Plant, and

Equipment includes:

 Property ordinarily not subject to depreciation or depletion, such as land;

 Property subject to depreciation or amortization, such as land improvements,

buildings, machinery, equipment, furniture, improvements to leased facilities

and bookplates; and

 Property subject to depletion such as timber tracts and mineral and oil

deposits.

IAS 16 recognizes an item of property, plant, an equipment when

a) It is probable that future economic benefits associated with the asset will flow to

the enterprise; and

b) The cost of the asset to the enterprise can be measured reliably.

Property, Plant, and Equipment that meets the requirement of IAS 16 is measured

initially at its cost. The following are the components of cost (IAS 16, Property, Plant

and Equipment paragraph 16);

6
a) Purchase Price , including import duties and non-refundable purchase taxes,

after deducting trade discounts and rebates;

-Purchase price shall be viewed in a broader sense and shall not be limited

only to the net cash paid to acquire the asset. It is determined by the mode

of acquiring an item of property, plant, and equipment.

b) Costs directly attributable to bringing the asset to the location and condition

necessary for it to be capable of operating in the manner intended by

management;
-Examples of directly attributable costs:
 Costs of employee benefits arising directly from the construction

or acquisition of the item of property, plant and equipment;

 costs of site preparation
 initial delivery and handling costs;
 installation and assembly costs;
 costs of testing whether the asset is functioning properly, after

deducting the net proceeds from selling any items produced while

bringing the asset to that location and condition (such as samples

produced when testing equipment); and

 Professional fees.
c) The initial estimate of the costs of dismantling and removing the item and

restoring the site on which it is located.

IAS 16 sections 30 and 31 states that resulting estimation after initial

recognition where an element picks either the cost model or the revaluation model as

its accounting policy and should apply that arrangement to a whole class of property,

plant and equipment.

 Cost model
- shall be carried in the statement of financial position at cost less

accumulated depreciation and any accumulated impairment losses.

 Revaluation model

7
 - A class of Property, Plant, and Equipment whose fair value can be

measured reliably shall be carried in the statement of financial position at a revalued

amount, being the fair value at the date of revaluation less any subsequent

accumulated depreciation and subsequent accumulated impairment losses.

V. Significant Judgments, Accounting Estimates regarding MGI’s PPE

 Determining Fair Values of Financial Instruments

- Where the fair values of financial assets and financial liabilities recognized

in the consolidated statements of financial position cannot be derived from

active markets, they are determined using a variety of valuation techniques

that include the use of mathematical models. MGI uses judgments to select

from a variety of valuation models and make assumptions regarding

considerations of liquidity and model inputs such as correlation and

volatility for longer dated financial instruments. The inputs to these models

are taken from observable markets where possible, but where this is not

feasible, a degree of judgment is required in establishing fair value.

 Deciding Functional Currency

- MGI has confirmed that the use and presentation money of the Parent

Company and its Philippine‐based subsidiaries is the Philippine Peso,

being the currency of the essential condition in which the Parent Company

and its major subsidiaries operate. The useful monetary forms of its outside

8
 operations are resolved as the money in the nation where the subsidiary

operates. For consolidation purposes, the foreign subsidiaries balances

are translated to Philippine Peso which is the Parent Company's utilitarian

and presentation currency.

 Accounting for Business Acquisition

- MGI accounts for acquired businesses using the acquisition method of

accounting which requires that the assets acquired and the liabilities

assumed be recognized at the date of acquisition at their respective fair

values.

 Estimating the Useful Lives of PPE, Investment Properties and Intangible Assets

- MGI surveys every year the estimated useful lives of property and

equipment, investment properties and intangible assets in view of expected

resource use as tied down on marketable strategies and methodologies

that likewise consider expected future technological advancements and

market conduct. The estimated useful lives are reviewed periodically and

are updated if expectations differ from previous estimates because of

physical wear and tear, specialized or business out of date quality and

legitimate or other limits on the use of these assets. Also, estimation of the

useful lives depends on an aggregate assessment of industry practice,

internal technical evaluation, and involvement with similar assets. It is

possible that future results of operations could be physically influenced by

9
 changes in these estimates achieved by changes in the factors mentioned.

The amount and timing of recorded costs for any period would be

influenced by changes in these elements and conditions.

VI. Company’s Amendment on Accounting Standard (IAS 16)

When Max’s Group Inc. became the parent company, the researcher only

gathered annual reports from 2015 and 2016 but in those annual reports they

disclosed accounting standards that they adopted which included IAS 16, Property,

Plant and Equipment.

On January 1, 2015, MGI has adopted to IAS 16, Property, Plant and

Equipment- Revaluation Method - Proportionate Restatement of Accumulated

Depreciation, and IAS 38, Intangible Assets - Revaluation Method - Proportionate

Restatement of Accumulated Amortization- The amendment clarifies how the gross

carrying amount and the accumulated depreciation / amortization are treated when

an entity uses the revaluation model.

The Following year, starting January 1, 2016, MGI also adopted IAS 16, Property,

Plant and Equipment, where MGI added guidance and clarified that:

 The use of revenue‐based methods to calculate the depreciation of an asset is

not appropriate because revenue generated by an activity that includes the use of

an asset generally reflects factors other than the consumption of the economic

benefits embodied in the asset, and;

10
 Revenue is generally presumed to be an inappropriate basis for measuring the

consumption of the economic benefits embodied in an asset; however, this

presumption can be rebutted in certain limited circumstances.

VII. MGI’s Accounting for their Property, Plant and Equipment

Property and equipment, except for land, is stated at cost less

accumulated depreciation and amortization and any allowance for impairment in

value. Land is stated at cost less any impairment loss. The initial cost of property and

equipment comprises its purchase price, including import duties and nonrefundable

purchase taxes and any directly attributable costs of bringing the property and

equipment to its working condition and location for its intended use. Expenditures

incurred after the property and equipment have been put into operations, such as

repairs and maintenance, are normally charged to expense in the period the costs

are incurred. In situations where it can be clearly demonstrated that the expenditures

have resulted in an increase in the future economic benefits expected to be obtained

from the use of an item of property and equipment beyond it originally assessed the

standard of performance, the expenditures are capitalized as an additional cost of

property and equipment.

Each part of an item of property and equipment with a cost that is

significant in relation to the total cost of the item is depreciated and amortized

separately. Depreciation and amortization are computed using the straight ‐line

method over the estimated useful lives of the assets

MGI’s composition of their Property, Plant and Equipment are as follows:
1. Land

11
2. Building
3. Leasehold Improvements
4. Store and Kitchen Equipment
5. Furniture, Fixtures and Equipment
6. Transportation Equipment
7. Construction In-Progress

MGI has provided a table showing the estimated useful lives of the Property, Plant

and Equipment. The following are as follows:

The estimated useful lives, depreciation and amortization methods are

reviewed periodically to ensure that the periods and methods of depreciation and

amortization are consistent with the expected pattern of economic benefits from items

of property and equipment. When assets are retired or otherwise disposed of, both

the cost and related accumulated depreciation and amortization are removed from

the accounts and any resulting gain or loss is recognized in the consolidated

statements of income.

Fully‐depreciated and amortized assets are retained as property and

equipment until these are no longer in use. Construction ‐in ‐progress, included in

property and equipment, is stated at cost. This includes cost of construction and other

direct costs. Construction‐in‐progress is not depreciated until such time as the

relevant assets are completed and available for use.

12
VIII. MGI’s Movement of Property, Plant and Equipment

MGI’s Property, Plant and Equipment 2016

13
 Since MGI adopted IAS 16 on January 1, 2016 where it clarified that the

use of revenue‐based methods to calculate the depreciation of an asset is not

appropriate because revenue generated by an activity that includes the use of an

asset. Therefore MGI used straight-line method on depreciating its assets since

revenue is generally presumed to be an inappropriate basis for measuring the

consumption of the economic benefits embodied in an asset although this

presumption can be rebutted.

In the start of 2016, MGI uses straight-line method where in this is widely

used in practice because of its simplicity. It assumes that the asset provides equal

economic benefits in each period of its estimated useful life. Straight-line depreciation

charge is computed as:

14
 Cost (or Revalued Amount) less residual value

Estimated useful life in number of years

The depreciation of an asset begins when it is available for use, i.e., when it

is in the location and condition necessary for it to be capable of operating in the

manner intended by management.

Depreciation and amortization charged to profit or loss are as follows:

From the given data above, the company’s depreciation charge has

increased since 2014 due to the various business combination of Max’s Group Inc.,

also the acquisition of Pancake House Holdings Inc. played a big role on the

increasing depreciation charge since it acquired 10 entities under the previous

ultimate parent company. With that entities under Max’s Group Inc. the depreciation

15
charge from 2014 is 133,640 (in thousands). With MGI following the IAS 16 they can

monitor their property, plant and equipment efficiently, through recognizing of

additional PPE they can base their recognition through IAS 16 where it states their

two considerations. Through the guidance of IAS 16, MGI can also monitor the

measurement of their PPE. As said in the financial disclosures of MGI, they

measured their PPE at cost price which is not only the purchase price but also

including in the cost of PPE are costs attributable to bringing the asset to the location

and condition necessary for it to be capable of operating in the manner intended by

management.

Since MGI has acquired 10 entities from Pancake House Holding Inc. Its

revenues increased by then. Although its expenses have increased as well as its

depreciation on PPE.

16
 Nature of Expenses of MGI

We can see

that acquisition of

additional assets and

liabilities will lead to an

17
increase of revenues and expenses. Especially the PPE of MGI since it is one of the

main factors of generating income but along with that it comes a higher costs.

IX. Summary of Study

In this study, regarding the impact of IAS16 Property, Plant and Equipment

on Max’s Group Inc. financial performance was they were able to monitor their PPE

well by following the measurement of initial recognition provided by the standard as

well as on how they depreciate their PPE using the straight-line method which is the

most simplest method of depreciating an asset. With the guidance of IAS 16 where it

provided to entities that applies IAS 16 the necessary considerations and rules to

follow when it comes to accounting for property, plant and equipment. With that said

Max’s Group Inc. won’t have any problems regarding the monitoring of their PPE as

long as they follow the IAS 16 and also the revisions to come on that standard.

Max’s Group Inc. Have also disclosed in their annual report regarding their

accounting for Property, Plant and Equipment. They disclosed on how they estimated

the useful life of the asset and other factors they considered in estimating the useful

life on an asset. They also disclosed on how they account of their PPE where they

initially measure them at cost and expenditures they incurred after the property and

equipment have been put into operations, such as repairs and maintenance, are

normally charged to expense in the period the costs are incurred which this

expenditures have resulted in an increase in the future economic benefits expected

18
to be obtained from the use of an item of property and equipment. MGI also disclosed

in their annual report the PPE that have been fully ‐depreciated and amortized assets

where they are retained as property and equipment until these are no longer in use.

Also, construction‐in‐progress, included in property and equipment, is stated at cost

where it includes direct costs and the construction ‐in ‐progress is not depreciated until

they are complete and available for use.

Overall, the impact of accounting standard, IAS 16 Property, Plant and

Equipment, on Max’s Group Inc. is that they were able to manage efficiently their

PPE because of the guidance provided by IAS 16. Since the standard provided

almost everything that an entity need to consider in accounting for their own property,

plant and equipment. If there are sudden changes regarding the standard, the

researcher assumes that MGI will follow the necessary changes on IAS 16 as well as

other accounting standards.

X. References
 https://www.iasplus.com/en/standards/ias/ias16
 http://investor.maxsgroupinc.com/wp-content/uploads/2016/12/2016-Annual-

Report.pdf
 http://investor.maxsgroupinc.com/wp-content/uploads/2016/12/2015-Annual-

Report.pdf

 Robles, Nenita S. and Empleo, Patricia M. (2016) The Intermediate Accounting Series Vol.1:

Millennium Books, Inc.

19
20