PROPERTY, PLANT AND EQUIPMENT

DEFINITION
- Property, Plant and Equipment
o Tangible assets
o Held for use in production
o Expected to be used more than one
year
1. Land
2. Building
3. Machinery
4. Ship
5. Aircraft
6. Motor Vehicle
7. Furniture and Fixtures
8. Office Equipment
9. Patterns, molds and dies
10. Tools
11. Leasehold improvements
12. Book plates
13. PPE used to develop/ maintain biological
assets, mineral rights and reserves
14. Major spare parts and stand by equipment
if expects to use more than 1 year
MEASUREMENT
- INITIAL MEASUREMENT
1. Cost Model
o Cost – Accum Dep’n – Impairment Loss
(If any)
a. Purchase price
b. Import duties (freight charges)
c. Nonrefundable purchase taxes
d. Cost of employee benefits arising
from acquisition/ construction of
PPE
e. Cost of site preparation
f. Initial delivery and handling cost
g. Installation and assembly cost
h. Professional fees
i. Cost of testing deducted to the
proceeds from selling any items
produced while bringing the asset
to that location and condition
j. Initial estimate of cost of
dismantling, removing and restoring
the location site
- SUBSEQUENT MEASUREMENT
1. Cost Model
2. Revaluation Model
o Revalued amount
o FV at the date of revaluation –
subsequent Accum Dep’n – subsequent
Impairment Loss (If any)
ACQUISITION
1. Cash basis
o Cost = Cash paid + direct costs
o If lump price, the basis of allocation is
the relative FV of each asset
2. On account with cash discount
o Cost = Invoice price – discount (taken/
not)
3. Installment basis
o Cost = Cash price
o If cash price < installment price,
difference is amortized over the credit
period proportionately
o If cash price is not available, use PV of
payments using NR
o Cost = Down payment + PV of
payments
4. Issuance of share capital (in order of priority)
o Cost = FV of PPE
o Cost = FV of share capital
o Cost = Par/Stated Value of share
capital
5. Issuance of bonds payable (in order of priority)
o Cost = FV of Bonds
o Cost = FV of PPE
o Cost = Face value of bonds
6. Exchange
a. With commercial substance
 Expected cash flows after the
exchange differ significantly
from the expected cash flows
before the exchange
 With recognition of any gain/
loss in exchange
i. No cash involved
1. FV of asset given
2. FV of asset received
3. Cost/ BV of asset given
ii. Cash is involved
1. Payor, Cost = FV of
asset given + cash
payment
2. Payee, Cost = FV of
asset given – cash
received
b. Without commercial substance
 CA of asset given without
recognizing any gain/ loss in
exchange
c. Trade In

Prepared by: Jeanette Lampitoc

 PROPERTY, PLANT AND EQUIPMENT
 Trading an asset to another
party as part payment and the
balance as cash
 With recognition of any gain/
loss in exchange
i. Cost = FV of asset given + cash
payment
ii. Cost = Trade-in Value of asset
given + cash payment
7. Donation
o Cost = FV of PPE received + direct costs
o Expenses are deducted to the “Donated
Capital” account
8. Construction
o Cost = DC of Materials + DC of labor +
IC/OH identifiable (if not identifiable,
allocate using Labor cost or hours)
o If Cost < Purchase price, its savings
o If Cost > Purchase price
 Material = Loss
 Immaterial = Not Loss
o Incidental operations of income and
expenses are recognized to P/ L
9. Government Grant/ subsidy/ subvention/
premium
o Government assistance in the form of
transfers of resources to an entity in
return for part or future compliance
with retain conditions relating to the
operating activities of the entity
o Forgivable loan of the government to
the entity with assurance that the
terms for the forgiveness of loan will
meet and it will be received
o Benefit of the government loan (Face
Amount – Face Value) is NIL or below
market rate of interest
o Measured at Fair Value of grant
a. Grant related to an asset
 Recognized as deferred income
OR deducted to respective
asset to arrive in CA of asset
 Repayment for noncompliance
(change in accounting estimate)
 Against any
unamortized deferred
income
 Excess is immediately
recognized as an
expense
 Any depreciation is
immediate expense
 Condition is to purchase,
construct or acquire long-term
asset
b. Grant related to income
 Presented in IS as other income
OR deducted to related
expense
 Repayment for noncompliance
(change in accounting estimate)
 Increase the CA of
asset
 Any depreciation is
immediate expense.
i. If grant is recognition of specific
expenses, allocated as income
over the period of related
expense
ii. If grant is recognition of
depreciable asset, allocated as
income using depreciation over
the period of related asset
iii. If grant is recognition of non-
depreciable asset, allocated as
income over the period which
bear the cost of meeting the
conditions
iv. If grant is recognition of
compensation of expenses/
losses already incurred or
giving financial support
without related cost,
recognized as income when
received
DERECOGNITION
- On disposal
o Gain/ Loss = Proceeds – CA of PPE
- When no future economic benefits are
expected from its use/ disposal
- Reclassified as “held for sale”
- Permanent idle/ abandoned PPE
- Fully depreciated PPE is not removed in the
accounts
- Temporary Idle/ Abandoned PPE is not
removed in the accounts
DISCLOSURES
1. CA of temporary idle PPE
2. Gross CA of fully depreciated PPE
3. CA of PPE held for sale
Prepared by: Jeanette Lampitoc
 PROPERTY, PLANT AND EQUIPMENT
4. If cost model is used, the FV of PPE if the amount
is material
5. Accounting policy of the gov’t grant
6. Nature and extent of gov’t grant
7. Unfulfilled conditions/ contingencies in grant

Prepared by: Jeanette Lampitoc