4.

Initial measurement of the PPE, Investment property and Intangible asset of the
type of consideration used in the acquisition of the aforementioned assets
PPE (IAS 16)
Initial Measurement of PPE

 An item of property, plant and equipment that qualifies for recognition as an asset
shall be measured at its cost.

Measurement of Cost in the Acquisition of Property

 Cash Basis
o COST = CASH PRICE EQUIVALENT (at recognition date)
 COST = Cash paid + Directly attributable costs
o If acquired at a “basket price”/”lump sum price” – apportion the single price to the
assets acquired on the basis of fair value
 On account
o COST = INVOICE PRICE-DISCOUNT (regardless of whether the discount is
taken or not)
 If discount not taken – purchase discount lost (other expenses)
o Cash discounts – reduction of cost
 Installment basis
o COST = CASH PRICE EQUIVALENT
 If asset is offered at cash price and installment price:
 Purchased at INSTALLMENT PRICE – recorded at CASH PRICE
 IP > CP – excess is treated as interest to be amortized over the credit
period
 If no CP – recorded at amount equal to present value of all payments
using implied interest rate
 Issuance of share capital
o AT FAIR VALUE OF CONSIDERATION RECEIVED
 goods and services received and increase in equity – at FAIR VALUE
(PFRS 2, par. 10)
 cannot estimate reliably the FV – measure value by reference to the FV
of the equity instrument issued
o Property measured at amount equal to (in the order of priority):
1. FV of the property received
2. FV of the share capital
3. Par value or stated value of the share capital
 Issuance of bonds payable
o Asset is measured at the ff. order:
1. FV of bonds payable
2. FV of asset received
3. Face amount of bonds payable
 Exchange
o AT FAIR VALUE (if nonmonetary or combination of monetary and nonmonetary)
o AT CARRYING AMOUNT if:
o Lacks commercial substance
 an asset has CS when CASH FLOWS OF THE ASSET
RECEIVED differ significantly from the CF OF THE ASSET
TRANSFERRED:
 a. consider if amount, timing, and risk of the cf from the
new asset are different from the cf of the old asset
b. entity-specific value of the portion of the entity’s
operations affected by the transaction changes as a result
of the exchange
*entity-specific value – present value of the cf an entity expects to arise
from the continuing use of an asset and from the disposal at the end of
useful life or expects to incur when settling a liability
c. the difference in (a) or (b) is significant relative to the fair
value of the assets exchanged
 FV cannot be measured reliably

o No cash involved, with CS:

 COST is equal to (order of priority):
1. FV of property given
2. FV of property received
3. Carrying amount of property given
o Cash is involved:
 COST is equal to:
a. FV OF ASSET GIVEN + CASH PAYMENT – on the part of the
payor
b. FV OF ASSET GIVEN - CASH RECEIVED - on the part of the
recipient
o No CS:
 AT CARRYING AMOUNT
 no gain or loss is recognized
 Cash + CA – payor
 Cash - CA – recipient

 Government grant
o AT FV (when received or receivable)
o are generally subsidies - recognized as income
o if not subsidies – offsetting credit is a liability account until initial restrictions are
met – if met, transferred to income
 Construction
o COST:
1. Direct cost of materials
2. Direct cost of labor
3. Indirect cos and incremental overhead specifically identifiable or traceable
to the construction
o Cost of abnormal amount of wasted material, labor or overhead incurred in the
production of self-constructed asset – not included

INVESTMENT PROPERTY (IAS 40)

INTANGIBLE ASSETS (IAS 38)

Initial Measurement
 Measured initially at cost

A. Separate acquisition
1. Cost can be measured reliably – purchase consideration is in the form of cash or other
monetary asset
Cost comprises of:
a. Purchase price
b. Import duties and nonrefundable purchase taxes
c. Directly attributable costs of preparing the asset for the intended use:
 Costs of employee benefits arising directly from bringing the asset to its
working condition
 Professional fees arising directly from bringing the asset to its working
condition
 Costs of testing whether the asset is functioning properly
2. If deferred beyond normal credit terms:
COST = CASH PRICE EQUIVALENT
* Cash price equivalent - Total payments = Difference is recognized as interest
expense over the credit period

B, Acquisition as part of business combination

COST – based on the FAIR VALUE OF THE ASSET
* if intangible asset is separable/ from contractual or legal right – sufficient information exists
to measure reliably the FV

a. If there is an active market – quoted price of an identical asset - most reliable evidence of FV
*quoted price of a similar asset in an active market may also provide evidence of FV

b. If no active market – FV = any available quoted price for identical or similar asset

c FV can be based on unobservable input developed by the entity using the best possible
information from the entity’s own data.

C, Acquisition by government grant

Initially recorded as either:
a. FAIR VALUE
b. NOMINAL AMOUNT or ZERO + DIRECTLY ATTRIBUTABLE EXPENDITURE

D. Acquisition by exchange
COST = FAIR VALUE
*unless transaction lacks commercial substance or;
* FV of neither the asset given up nor the asset received is reliably measurable
If transaction lacks commercial substance:
COST = CARRYING AMOUNT OF THE ASSET GIVEN UP

E. Internally generated intangible assets

COSTS = DIRECTLY ATTRIBUTABLE COSTS