CHAPTER 25: PROPERTY, PLANT &  Beyond discount period

A/P xx
EQUIPMENT Purchase Discount Lost xx
 CHARACTERISTICS: Cash xx
- Tangible assets Equipment xx
- Used in business – production/supply, rental, admin NET METHOD
- Used over a period of more than one year  Acquisition
 RECOGNITION; Equipment xx
a) future economic benefits to the entity A/P (net amount) xx
b) cost measured reliably  Within discount period
 ELEMENTS OF COST A/P xx
a) (Purchase price + import + non-refundable tax) less Cash (net amount) xx
(discounts and rebates)  Beyond discount period
b) Directly attributable – location and condition A/P xx
 Employee benefits Purchase Discount Lost xx
 Site preparation Cash xx
 Professional fees
 Delivery and condition ACQUISITION ON INSTALLMENT BASIS
 Installation and assembly - Cash price (excess = interest to be amortized)
 Testing - No cash price = present value of all payments
c) Dismantling, removing, & restoring the site – - Journal Entries
obligation  Acquisition with Cash Price
 EXPENSED Machinery (cash price) xx
- “new” Discount on N/P xx
- Advertising and promotion N/P (balance) xx
- Admin and general overhead Cash (down) xx
- Less than full capacity  Acquisition without Cash Price
- Initial operating losses Machinery xx
- Relocating and reorganizing Discount on N/P xx
 AFTER RECOGNITION N/P xx
- Cost model: Cost less accumulated depreciation and Cash (down) xx
impairment loss Computation:
- Revaluation model: Fair value less accumulated Down Payment xx
depreciation and impairment loss PV of NP (PV of 1) xx
 ACQUISITION OF PROPERTY Cost xx
ACQUISITION ON CASH BASIS
- Cash price equivalent NP xx
- Cash paid + freight, installation, etc. PV of NP (xx)
- “basket price”/lump sum = apportion Implied Interest xx
- Computation: Amortization Table:
DATE PAYMENT INTEREST(% x PV) PRINCIPAL PV
FAIR VALUE FRACTION ALLOCATED
COST x/x/x1 - - - XX
ASSET 1 XX X/X XX x/x/x1 XX - XX = XX XX
ASSET 2 XX X/X XX x/x/x2 XX - XX = XX XX
x/x/x3 XX - XX = XX -
XX BASKET PRICE
 Installment Payment
ACQUISITION ON ACCOUNT
N/P xx
- Invoice price minus discount (regardless taken or
Cash xx
not)
 Amortization
 Not taken = purchase discount lost
Interest Expense xx
 Recorded cost = net amount Discount on N/P xx
 Cash discounts are reduction of cost NOT DATE NP FRACTION INTEREST
INCOME EXPENSE
- Journal entries 20x1 XX X/X XX
GROSS METHOD 20x2 XX X/X XX
 Acquisition 20x3 XX X/X XX
Equipment xx XX DISCOUNT
A/P xx ON NP
 Within discount period
A/P xx
ISSUANCE OF SHARE CAPITAL
Cash (net amount) xx
- Order of priority:
Equipment (discount) xx
a) FV of Property Received
b) FV of Share Capital
 c) Par value or stated value of the share capital Computation:
- Journal Entries FV of Asset Given xx
 FV of Property Received Cash Received xx
Asset xx Cost xx
Share Capital (Par) xx
Share Premium xx FV of Asset Given xx
 FV of Share Capital Carrying Amount (xx)
Asset (Quoted) xx Gain (Loss on Exchange) xx
Share Capital (Par) xx
Share Premium xx II. No Commercial Substance
 Par value or stated value of SC  Carrying amount
Asset (Par) xx  No gain or loss
Share Capital (Par) xx  Cash: Add to payor; deduct to recipient
 Journal entries
ISSUANCE OF BONDS PAYABLE PAYOR
- Order of priority: Equipment – New xx
d) FV of Bonds Payable Accumulated Depreciation xx
e) FV of Asset Received Equipment – Old xx
f) Face Amount of BP Cash xx
- Journal Entries Computation:
 FV of Bonds Payable Carrying Amount xx
Asset (Quoted) xx Cash Payment xx
Bonds Payable (Face) xx Cost xx
Premium on BP xx
 FV of Asset Received RECIPIENT
Asset xx Equipment – New xx
Bonds Payable (Face) xx Accumulated Depreciation xx
Premium on BP xx Cash xx
 Face Amount of BP Equipment – Old xx
Asset (Face) xx Computation:
Bonds Payable (Face) xx Carrying Amount xx
Cash Received xx
EXCHANGE Cost xx
- Commercial substance: cash flows change
significantly III. Trade In
- Fair value  Nondealer acquiring from a dealer
- Carrying amount if:  Has commercial substance
a) Lacks commercial substance  Order of priority:
b) Not reliably measurable a) FV of asset given plus cash payment
I. With Commercial Substance b) Trade in value of asset given plus cash
 Silent problems payment
 Cost  Journal entries
 Journal entries FAIR VALUE APPROACH
PAYOR Equipment – New xx
Equipment – New xx Accumulated Depreciation xx
Accumulated Depreciation xx Loss on Exchange xx
Loss on Exchange xx Equipment – Old xx
Equipment – Old xx Cash xx
Cash xx Computation:
Computation: FV of Asset Given xx
FV of Asset Given xx Cash Payment xx
Cash Payment xx Cost xx
Cost xx
FV of Asset Given xx
FV of Asset Given xx Carrying Amount (xx)
Carrying Amount (xx) Gain (Loss on Exchange) (xx)
Gain (Loss on Exchange) (xx)
TRADE IN VALUE APPROACH
RECIPIENT Equipment – New xx
Equipment – New xx Accumulated Depreciation xx
Accumulated Depreciation xx Equipment – Old xx
Cash xx Gain on Exchange xx
Equipment – Old xx Cash xx
Gain on Exchange xx Computation:
Trade In Value of Asset Given xx  Temporary idle = PPE (still depreciates)
Cash Received xx OPTIONAL DISCLOSURES
Cost xx  Carrying amount of temporary idle
 Gross carrying amount of fully depreciated
Trade In Value of Asset Given xx  Carrying amount of PPE held for sale retired from
Carrying Amount (xx) active use
Gain (Loss on Exchange) xx  Cost model: materially different

DONATION
CHAPTER 26: GOVERNMENT GRANT
- Market Value  Assistance: transfer of resources in return for future
I. From Shareholders compliance with certain conditions relating to
operating activities
 FV to donated capital (Cr)
 Fair value if: entity will comply
 Expenses (registration and legal fees) are
: grant will be received
charged to the donated capital account
 Do not increase or enhance value of asset  Income over the periods
II. From Non-Shareholders  Classifications
 FV when received or receivable - Grant related to asset: purchase, construct or
acquire long-term asset
 Subsidies = income (income from donation)
 Deferred income
 Not subsidies = liability account then transferred
to income once initial restrictions are met  Deducting the grant in arriving at the carrying
CONSTRUCTION amount
Cost: - Grant related to income: “others”
1) Direct materials  Separately or “other income”
2) Direct Labor  Grant is deducted from expense
3) Indirect Cost (identifiable) = allocation may be SPECIFIC EXPENSES
done - Allocated: specific expenses over the period of the
CONSTRUCTE FINISHED TOTAL related expenses
D ASSET GOODS - Journal entries
Materials XX XX XX  Received grant
Labor XX XX XX Cash xx
Man. XX XX XX Deferred Grant Income xx
Overhead  Recognize income
XX XX XX Deferred Grant Income xx
Grant Income xx
 Incur expenses
DIRECT FRACTION OVERHEAD
Environmental Expenses xx
LABOR
Cash xx
Constructed XX X/X XX
Computation:
Asset
EXPENSES FRACTION GRANT
Finished XX X/X XX
INCOME
Goods
20X1 XX X/X XX
XX XX
20X2 XX X/X XX
20X3 XX X/X XX
- Saving or loss XX XX
 Actual cost < price = saving
 Actual cost > price = not loss (recorded at actual
DEPRECIABLE ASSET
cost)
- Allocated: proportion to the depreciation
 Incidental operations = profit or loss
- Journal entries
- Derecognition
 Received grant
 Removed from accounts Cash xx
 Disposal/no future economic benefit Deferred Grant Income xx
 Difference of net disposal proceeds and carrying  Acquire asset
amount Building xx
- Fully depreciated Cash xx
 Carrying amount is equal to 0 or salvage value or  Depreciation Expense
residual value Depreciation xx
PROPERTY CLASSIFIED AS HELD FOR SALE Accumulated Depreciation xx
 Within 1 year; available for immediate sale  Recognize income
 Current asset Deferred Grant Income xx
 Lower of carrying amount or fair value less cost of Grant Income xx
disposal NONDEPRECIABLE ASSET
 Not depreciated - Allocated: cost of meeting the conditions
IDLE OR ABANDONED PROPERTY - Journal entries
 Not held for sale  Received grant
Land xx Cash xx
Deferred Grant Income xx Depreciation xx
 Construct asset Accumulated Depreciation xx
Refinery xx Computation:
Cash xx Depreciation on original carrying amount xx
*Depreciation and income same years* Depreciation on increased carrying amount xx
COMPENSATION Total Depreciation xx
- Financial support
- Journal entries Building xx
 Income immediately Accumulated Depreciation (xx)
Cash xx Carrying Amount – 12/31 xx
Grant Income xx
APPROACH FOR PRESENTATION GRANT OF INTEREST-FREE LOAN
I. DEFERRED INCOME APPROACH - Forgivable loan: reasonable assurance that the
 Acquisition entity will meet the terms of forgiveness
Equipment xx - Amortization table
Cash xx AMORTIZATION DISCOUNT ON NP PV (previous PV
(%) (previous – + amortization)
 Deferred Income amortization)
Cash xx 1/1/X1 - XX XX
Deferred Grant Income xx 12/31/X1 XX XX XX
12/31/X2 XX XX XX
 Depreciation Expense
12/31/X3 XX XX XX
Depreciation xx
Accumulated Depreciation xx
- Journal entries
 Recognize income
 Received grant
Deferred Grant Income xx
Cash xx
Grant Income xx
Discount on Notes Payable xx
Note Payable xx
II. DEDUCTION FROM ASSET APPROACH
Deferred Grant Income xx
- Allocated: proportion to the depreciation
 Amortization
- Journal entries
Interest Expense xx
 Acquisition
Discount on Notes Payable xx
Equipment xx
 Recognize income
Cash xx
Deferred Grant Income xx
 Deduction
Grant Income xx
Cash xx
 Paid (End)
Equipment xx
Notes Payable xx
 Depreciation Expense
Cash xx
Depreciation xx
Accumulated Depreciation xx
REPAYMENT CHAPTER 27: BORROWING COST
- Noncompliance = change in accounting estimate  In connection with borrowing of funds; includes:
I. GRANT RELATED TO INCOME a) Interest expense
- Unamortized deferred income first b) Finance charge
- Excess = expense c) Exchange difference (foreign currency)
 Entry  Qualifying asset – substantial period of time to get
Deferred Grant Income xx ready for the intended use or sale
Loss on repayment of grant xx  Excluded from capitalization:
Cash xx a) Fair value (biological assets)
b) Repetitive basis (ex. Maturing whiskey)
II. GRANT RELATED TO ASSET c) Ready for intended use/sale when acquired
- Increasing carrying amount  PAS 23 mandates:
 Deferred Income Approach - Borrowing cost directly attributable: capitalized as
Deferred Grant Income xx cost of the asset
Loss on repayment of grant xx - Other borrowing costs (not directly attributable):
Cash xx expensed
Depreciation Expense xx  Commencement of capitalization
Accumulated Depreciation xx - When conditions are met:
Computation: a) Incurs expenditure
Building xx b) Incurs borrowing cost
Accumulated Depreciation (xx) c) Undertakes activities to prepare asset intended
Carrying Amount – 12/31 xx for use/sale
 Ex. Technical and admin work
 Deduction from asset Approach  Development activity
Building xx  Suspension of capitalization
 - Suspension = active development is interrupted Capitalizable B.C. in 20x1:
- Not normally suspended = substantial technical and Specific ( xx × %) xx
admin work carried out General ( xx × % ) xx
- Not also suspended = temporary delay is a necessary Total cost of new bldg to date xx
part of the process
- Continues = delay is caused by common occurrence 20x2 Cumulative Actual Expenditures in 20x2 xx
in geographical region Capitalizable B.C. in 20x2:
 Cessation of capitalization: substantially activities Specific ( xx × %) xx
necessary are complete General ( xx × % ) xx
 Disclosures Total cost of new bldg xx
a) Amount of borrowing cost
b) Capitalization rate MORE THAN 1 YEAR BUT LESS THAN 2 YEARS
DATE EXPENDITURE FRACTION AVERAGE
ASSET FINANCED BY SPECIFIC BORROWING Jan 1 XX 8/8 XX
- Specifically for the purpose of acquiring a qualifying Jul 1 XX 2/8 XX
asset XX XX
- Computation: Cumulative Actual Expenditures in 20x2 xx
Actual Borrowing Cost xx Capitalizable B.C. in 20x2:
Interest Income from investment proceeds (xx) Specific ( xx × % ) xx
Capitalizable Borrowing Cost xx General ( xx × %) xx
Total cost of building xx
ASSET FINANCED BY GENERAL BORROWING
- Generally; used for acquiring a qualifying asset SPECIFIC BORROWING FOR ASSET USED FOR GENERAL
- Capitalizable borrowing cost shall not exceed the PURPOSES
actual interest incurred - Specific but a portion is for working capital purposes
- Investment income is not deducted - General borrowing = determining capitalizable
- Computations borrowing cost
DATE EXPENDITURE MONTHS AVERAGE
S OUTSTANDING CHAPTER 28: LAND & BUILDING
Jan 1 XX 12/12 XX
 Land account
Mar 31 XX 9/12 XX
I. STATEMENT CLASSIFICATION
Jun 30 XX 6/12 XX
- Used as a plant site = PPE
Sep 30 XX 3/12 XX
- Held for a currently undetermined use =
Dec 31 XX - -
Investment Property
Average Carrying Amount XX
- Definitely as a future plant size = PPE
Total annual borrowing cost - Held for current sale = Inventory (current asset)
Capitalization Rate =
Total general borrowing II. COSTS CHARGEABLE TO LAND
Capitalizable borrowing cost = - Purchase price
Average carrying amount × capitalizationrate - Legal fees and other expenditures (clean title)
*not exceed the actual cost* - Broker or agent commission
ASSET FINANCED BOTH BY SPECIFIC AND GENERAL - Escrow fees
BORROWING - Registration and transfer
- Computations - Relocation or reconstruction
DATE EXPENDITURES MONTHS AVERAGE
(actual expenditures)
- Mortgages, exncumbrances and interest
OUTSTANDING - Unpaid taxes up to date of acquisition
Jan 1 XX 12/12 XX - Cost of survey
Mar 31 XX 9/12 XX - Tenants: vacate; not to make room for new
Jun 30 XX 6/12 XX building
Sep 30 XX 3/12 XX - Permanent improvements
Dec 31 XX - - - Option to buy the acquired land
Average Expenditures XX III. LAND IMPROVEMENTS
- Not subject to depreciation = Land Account
Average Expenditures xx - Depreciable = Land Improvements
Specific borrowing xx IV. SPECIAL ASSESSMENTS
General Borrowing xx - Taxes paid by landowners = cost of land
 Increase definitely the value
Specific borrowing xx V. REAL PROPERTY TAXES
General Borrowing (xx) - Real property taxes = Expense
Total Capitalizable B.C. xx - Unpaid and assumed in acquisition = capitalized
 Building account
CONSTRUCTION PERIOD MORE THAN ONE YEAR I. WHEN PURCHASED (COST)
- Group it by year muna - Purchase price
- Computation: - Legal fees and other expenses in connection
20x1 Actual Expenditures in 20x1 xx
 - Unpaid taxes - Fee to consultants
- Interest, mortgage, liens and other - Safety rail and platform
encumbrances - Water device
- Tenants to vacate  Removed and retired to make room = Expense
- Renovating or remodeling  VAT = not capitalizable (input tax and the offset)
II. WHEN CONSTRUCTED  Irrecoverable or non-refundable tax = Capitalized
- Direct material, direct labor, factory overhead II. TOOLS
- Building permit or license - Machine = drills and punches
- Architect fee - Hand = hammer and saws
- Superintendent fee III. PATTERNS AND DIES
- Excavation - Regular = assets
- Temporary buildings - Special = cost of special
- Loans and insurance: expenses during IV. EQUIPMENT
construction - Delivery: cars, trucks, etc.
- Service equipment and fixture: permanent part  Registration fees = expensed
- Temporary safety fence (permanent = land - Store and office: computers, cash register, etc.
improvement)  Selling function = store
- Safety inspection fee - Furniture and Fixture
III. SIDEWALKS, PAVEMENTS, PARKING LOT, V. RETURNABLE CONTAINERS
DRIVEWAYS - Big units/great bulks = PPE
- Part of blueprint = Building account - Small and individually = other noncurrent assets
- Occasionally made or incurred not in connection - Not returnable = expense
= Land improvements VI. CAPITAL VS. REVENUE EXPENDITURE
IV. CLAIMS FOR DAMAGES - Current period = revenue expenditure = expense
- Insurance taken = charged to building - Current and future = capital expenditure = asset
 Necessary and reasonable cost VII. SUBSEQUENT COSTST
- Insurance not take = Expensed a) Future economic benefits flow to the entity
 Management failure or negligence - Extends the life
V. BUILDING FIXTURES - Increases capacity
- Immovable = Building - Improves efficiency and safety
- Movable = Furniture and Fixtures b) Cost can be measured reliably
VI. VENTILATING SYSTEM, LIGHTING SYSTEM, - Increase = capitalized
ELEVATOR - Maintains = expense
- Installed during construction = Building  Additions: increase physical
- Otherwise = Building improvements - New unit: depreciation useful life
 Depreciation = useful life or remaining life (w/c - Expansion: depreciation expansion/remaining
shorter) (w/c is shorter)
 PIC Interpretation on Land and Building  Improvements or betterments: increase service life
I. PURCHASED AT A SINGLE COST - Better or superior = capitalized
- Usable = allocated based on FV  Replacements: substitution (not better)
- Unusable = Land only - Replace old by a new asset
II. DEMOLISHED IMMEDIATELY - Major parts/extra ordinary
- Usable = loss if old building is PPE/Investment - Minor parts/ordinary
Property  Repairs: restore to good condition
- Usable = capitalized to new building if old - Extraordinary = large sums = capitalized
building is inventory - Ordinary = small sums = expense
- Demolition cost minus salvage = capitalize the  Maintenance = keeps good condition
new whether PPE/Investment  Rearrangement cost: relocation/redeployment
Property/Inventory - Expensed as incurred = maintains level
- Net demolition cost = capitalized to land VIII.ACCOUNTING FOR MAJOR REPLACEMENT
III. PRIOR PERIOD USED BUT DEMOLISHED - Practicable = asset
- Carrying amount of old building = loss  Cost of part and accumulated depreciation of
- Net demolition cost = capitalized to new building part = removed
- Contract lease = charged to cost of new building  Remaining = loss
CHAPTER 29: MACHINERY - Not practicable = cost of replacement (discounted)
I. COST OF MACHINERY SEPARATE IDENTIFICATION IS PRACTICABLE
- Purchase price - Journal entries
- Freight, handling, storage and other directly  Eliminate original cost
- Insurance while in transit Loss on retirement of building xx
- Installation Accumulated Depreciation xx
- Testing and trial run Building xx
- Dismantling, removing, restoring (with present
obligation)
  Replacement  Obsolence – no future demand (encompasses
Building xx inadequacy and supersession)
Cash xx  Factors of depreciation
 Subsequent annual depreciation 1) Depreciable amount
Depreciation xx - Cost less residual value
Accumulated Depreciation xx - Part that is significant in relation to the total
cost is depreciated separately
- Computation: 2) Residual value
Building xx - Net amount currently obtainable at the end of
Accumulated Depreciation (xx) the useful life
Carrying Amount – 12/31 xx - Reviewed at least annually at year-end
Annual Depreciation (xx/x) xx - Change = change in accounting estimate
- If residual value ≥ carrying amount → residual
SEPARATE IDENTIFICATION IS NOT PRACTICABLE value = 0
- Journal entries - If residual value does not exceed the carrying
 Eliminate cost amount
Loss on retirement of building xx 3) Useful life – period available for use or number
Accumulated Depreciation xx of production expected
Building (PV) xx a. Time periods
 Replacement b. Output
Building xx c. Service hours
Cash xx  Factors
 Subsequent annual depreciation - Expected usage (capacity or physical output)
Depreciation xx - Expected physical wear and tear (repair &
Accumulated Depreciation xx maintenance; care while idle)
- Technical or commercial substance (market
- Computation: demand)
Building (xx-xx+xx) xx - Legal limits (expiry date of related lease)
Accumulated Depreciation (xx-xx) (xx)  Service life – useful life
Carrying Amount – 12/31 xx  Physical life – how long asset shall last
Annual Depreciation (xx/x) xx  Depreciation method
- Reviewed year-end
CHAPTER 30: DEPRECIATION – - Significant change = change in accounting estimate
1) Equal or uniform
STRAIGHT LINE AND VARIABLE a. Straight line method
 Allocated to expense: b. Composite method
a) Depreciation – PPE c. Group method
b) Depletion – Wasting Assets 2) Variable charge or use-factor or activity methods
c) Amortization – Intangible Assets a. Working hours or service hours
 Systematic allocation of the depreciable amount of b. Output or production method
an asset over the useful life 3) Decreasing charge or accelerating or diminishing
 Cost allocation: exhaustion of the useful life balance
 Period benefiting from the use of the asset a. Sum of years digits
 Expense: cost of goods manufactured & operating b. Declining balance method
expense c. Double declining method
- Unless it is included in the carrying amount of 4) Other methods
another asset a. Inventory or appraisal
 Depreciation period b. Retirement method
- Begins = available for use (location and condition) c. Replacement method
- Ceases = derecognized STRAIGHT LINE METHOD
 PFRS 5: held for sale = discontinued - Allocating equally
 Kinds of depreciation - Constant charge
- Physical - Passage of time
 Wear and tear (frequent use) - Simplicity
 Passage of time (non-use) Cost−Residual Value
Annual Depreciation=
 Action of the elements (wind, sunshine, etc.) Usefullife∈ years
 Casualty or accident (fire, flood, etc.) 100 %
Straight Line Rate=
 Disease or decay Life∈ years
- Functional or economic COMPOSITE AND GROUP METHOD
 Inadequacy – no longer useful because of - Many individual assets as a single asset
increase in the volume of operations - Composite –dissimilar
 Supersession – new asset available can - Group – similar
perform the same function efficiently - Accounting procedures
 a) Not related to a specific asset INVENTORY METHD
b) Composite/group rate is multiplied by the total - Estimating value
cost - Depreciation = balance of asset – value at the end
c) Retired = no gain or loss - No accumulated depreciation → Credited directly to
Accumulated Depreciation xx asset
Asset xx - Asset: small and relatively inexpensive
- It is not systematic
d) Replaced by a similar asset - Journal entries
Asset xx  Acquisition
Cash xx Tools xx
*afterwards, rate x balance = periodic depreciation* Cash xx
Total annual depreciation  Sale
Composite Rate=
Total cost Cash xx
Total depreciable cost Tools xx
Composite Life=  Depreciation
Total annual depreciation
 Retirement of asset in the group Depreciation xx
Cash xx Tools xx
Accumulated Depreciation xx - Computation
Asset xx Balance of tools account xx
 No proceeds from retirement Inventory tools – 12/31 (xx)
Accumulated Depreciation xx Depreciation xx
Asset xx
New accumulated depreciation=Remaining cost × compositeRETIREMENT
rate METHOD
VARIABLE CHARGE OR ACTIVITY METHODS - No depreciation until retired
- Function of use - Depreciation = cost minus salvage proceeds
- Depreciate more rapidly if fulltime or overtime - Journal entries
- Direct relationship between utilization and realization  Acquisition
of revenue Tools xx
Depreciable amount Cash xx
1) Working hours method=  Retirement
Hours
Depreciable amount Cash xx
2) Output method= Depreciation xx
Output
Tools (FIFO) xx
CHAPTER 31: DEPRECIATION – SYD & REPLACEMENT METHOD
DECLINING - No depreciation until retired and replaced
 Decreasing charge or accelerated methods (higher - Depreciation = replacement cost minus salvage
depreciation in earlier years; lower depreciation in proceeds
later years) - Journal entries
 More revenue earlier  Acquisition
 Cost of using – includes depreciation and repairs Tools (excess of retirement) xx
 Repair cost = systematic and uniform basis Cash xx
 Replacement
 3 decreasing charge methods
 Depreciation xx
a) Sum of years digits
 Tools
b) Declining balance
xx
c) Double declining
- Computation
SUM OF YEARS’ DIGITS
Replacement cost of tools retired xx
A
Depreciation Expense= × Depreciable amount Proceeds from retirement (xx)
B
Depreciation xx
*A = remaining life
*B = SYD
 Change in useful life
Life+1
SYD=Life( ) - Unexpected physical deterioration or
2 technological improvement = useful life <
Sum of half years digits = multiply life by 2 estimated
*Consider calendar year and acquisition date - Improved maintenance procedures or revision =
DOUBLE DECLINING BALANCE METHOD prolong the useful life
- Balance = Book Value - Adjusted
200 %
Rate= - Computation:
Life Cost xx
- Fixed rate is multiplied by declining carrying amount Accumulated Depreciation (xx)
- Approximation of declining Carrying Amount – 1/1 xx
- Declining (mathematical formula) vs. Double Annual Depreciation - New (xx/new life) xx
Declining (Straight line x 2)  Change in Depreciation method
- 150% declining = fixed rate is 150%
 - Solve for latest carrying amount then apply new Original cost of wasting asset xx
method Additional cost in subsequent year xx
- Total xx
CHAPTER 32: DEPLETION Accumulated depletion (xx)
Remaining depletable amount xx
 IFRS 6: exploration and evaluation of mineral
New depletion rate per unit (xx/xx) xx
resources
DEPRECIATION OF MINING PROPERTY
 Search after legal right; exploration and evaluation
- Depreciation of equipment: life of equipment vs. life
before technical feasibility and commercial viability
of wasting asset (w/c is shorter)
 Do not include: before legal right; after technical
 If equipment life is shorter = straight line
feasibility and commercial viability
 If wasting asset life is shorter = output method
 Exploration and evaluation expenditures
- Shutdown
- Acquisition of rights
 Output method cannot be used
- Studies
 Based on remaining life; straight line method
- Drilling
 Computation (if operations resume after
- Trenching
shutdown)
- Sampling
Equipment, at cost xx
- Evaluating feasibility and viability
Accumulated depreciation (xx + xx) (xx)
- General and administrative costs directly
Carrying amount xx
attributable
 Initially at cost → subsequent at cost/revaluation
Original estimate of deposit xx
model
Extracted in first year (xx)
 Wasting assets are physically consumed and
Remaining estimate of deposit xx
irreplaceable
 Cost of wasting asset
Depreciation rate per unit (xx/xx) x
- Acquisition cost
 Price paid to obtain
Depreciation for current year(xx/x) xx
 Initial cost
 Trust fund doctrine vs. wasting asset doctrine
 Residual land value: may be included (land is a
- Trust fund doctrine
separate account)
 Share capital of a corporation: trust fund for
 Land value: residual value
the protection of creditors; capital cannot be
 Depletable amount: deducted from cost
returned to shareholders
- Exploration cost
 Can pay dividends: only to the balance of
 Before feasibility and viability
retained earnings
 Methods
 Cannot pay dividend: if corporation has deficit
a) Successful effort method (large companies):
- Wasting asset doctrine
unsuccessful = expensed
 Wasting asset corporation: can legally return
b) Full cost method (small entities): capitalized
capital to shareholders
whether successful or unsuccessful
 Can pay dividend: not only retained earnings
- Development cost
also extent of accumulated depreciation
 Incurred to exploit or extract
 Excess of retained earnings: accounted as
 Tangible: not capitalized; depreciated
liquidating dividend or return of capital
 Intangible: capitalized
 Journal entry
- Estimated restoration cost
Retained earnings xx
 Bring property to original condition
Capital liquidated xx
 Added to cost OR “netted” against residual Dividends payable xx
value *Accumulated depreciation – not charged
 PAS 16: capitalized only when incurs the because it is not a source of dividend (only for
obligation purposes of determining how much can be
 Must be an existing present obligation and legally returned
discounted * Capital liquidated – deduction from
 Systematic allocation of a wasting asset over the shareholders equity
period resource is extracted or produced  Computation
USUALLY OUTPUT OR PRODUCTION METHOD Retained earnings xx
Depletable amount Add: Accumulated depletion xx
Depletion rate per unit= be extracted ¿Total
Units ¿ xx
Capital liquidated in prior years xx
Depletion (% per unit x units extracted) xx Unrealized depletion in ending inventory xx xx
Accumulated Depletion xx Maximum dividend xx
- Income Statement: Depletion = Cost of Sales
- Financial Position: Separate line item
Resource deposit, at cost xx
CHAPTER 33: REVALUATION
Accumulated Depletion (xx)  Initially at cost; subsequently at cost/revaluation
Carrying Amount xx model
REVISION OF DEPLETION RATE  Basis of revaluation
 1) Fair value - appraisal Depreciation xx
2) Depreciated replacement cost – market value is Accumulated depreciation xx
not available Computation:
 Depreciated replacement cost – replacement cost Revised useful life x
minus depreciation; sound value Age of machinery (x)
 Revaluation surplus – fair value minus carrying Remaining revised useful life x
amount; revaluation increment Depreciation on cost (xx/x) xx
 Appreciation – revaluation increase Depreciation on appreciation (xx/x) xx
 Computation: Original useful life Total depreciation xx
Accumulated depreciation – cost xx  Piecemeal realization
Divide by: age of asset x Revaluation surplus xx
Annual depreciation xx Retained earnings xx
Asset at cost xx
Divide by: annual depreciation on cost xx REVERSAL OF REVALUATION SURPLUS
Original useful life x - Revaluation decrease: revaluation surplus to the
extent of a previous revaluation and the balance is
PROPORTIONAL APPROACH charged to expense
- Depreciation is restated proportionately with the - Computation:
change in gross carrying amount Equipment xx
COST REPLACEMEN APPRECIATION Acc. Dep. (xx + xx) (xx)
T COST (RC – COST) Depreciated Replacement cost xx
Asset XX XX XX Revaluation surplus (xx-xx) xx
Acc. Dep. XX XX XX Journal entry:
CA/SV/RS XX XX XX Accumulated depreciation xx
Journal entry for revaluation: Revaluation surplus xx
Machinery xx Revaluation loss xx
Accumulated depreciation xx Equipment xx
Revaluation Surplus xx Computation for entry: (refer to values under
ELIMINATION APPROACH decrease)
- Depreciation is eliminated against the gross PER BOOK ADJUSTED DECREASE
Replacement XX XX XX
carrying amount
cost
Accumulated depreciation is offset against carrying Acc. Dep. XX XX XX
amount: Depreciated
Accumulated depreciation xx replacement
Machinery xx cost XX FAIR VALUE XX
Machinery account is then adjusted:
Machinery xx SALE OF REVALUED ASSET
Revaluation surplus xx  Sale
Cash xx
Sound value xx Accumulated depreciation xx
Debit balance in machinery (xx) Asset xx
Revaluation surplus xx Gain on sale of asset xx

*Piecemeal realization of revaluation surplus: annual Computation for entry:

realization through retained earnings Sale price xx
Revaluation surplus xx Carrying amount (xx)
Retained earnings xx Gain on sale of asset xx
CHANGE IN LIFE AND RESIDUAL VALUE  Revaluation surplus
COST REPLACEMENT APPRECIATION Revaluation surplus xx
COST
Retained earnings xx
Asset XX XX XX
Residual value NEW NEW -
Depreciable XX XX XX CHAPTER 34: IMPAIRMENT OF ASSET
amount
Accumulated Old salvage; New salvage; XX – INDIVIDUAL ASSET
depreciation old life old life  Impairment – fall in market value where
Remaining recoverable amount < carrying amount
depreciable
 Asset shall not be carried above the recoverable
amount XX XX XX
amount
- Journal entries;
 If carrying amount cannot be recoverable in full
 Revaluation
→write down
Machinery xx
 Carrying amount > recoverable → impairment loss
Accumulated depreciation xx
 Issues to consider
Revaluation surplus xx
a) Indication of possible impairment
 Annual depreciation
  External sources  Smallest identifiable group of assets that generate
- Decrease or decline in market value cash inflows that are independent from other assets
- Change in environment of the business  Recoverable amount is determined individually; if
- Increase in the interest rate or market rate not possible determine recoverable amount of the
- Carrying amount is more than the market CGU
capitalization ( CA exceeds the FV)  PAS 36 – impairment loss is allocated to:
 Internal sources a) Goodwill
- Obsolescence or physical damage b) Then to noncash assets (pro-rata based on their
- Manner or extent used carrying amount)
- Evidence economic performance will be used GENERALLY (no goodwill)
b) Measurement of the recoverable amount *after allocation of impairment
 Fair value less cost of disposal (exit price or Journal entry for impairment loss:
selling price) vs. Value in use (w/c is higher) Impairment loss xx
c) Recognition of impairment loss Accumulated depreciation – building xx
 Entries and computations Land (non-depreciable) xx
Accumulated depreciation – equipment xx
GENERALLY
Inventory (non-depreciable) xx
Impairment loss xx
Accumulated depreciation xx
WITH INDICATED EXIT PRICE OF AN ASSET
Computation for values:
- PAS 36 Paragraph 105: carrying amount of an asset
Carrying amount xx
shall not be reduced below the recoverable amount
Recoverable amount (xx)
 Otherwise: impairment is allocated to the other
Impairment loss xx
assets of the CGU
 Reallocate the loss to the other assets
USING FUTURE CASH FLOWS
*same entry
YEAR REVENUE COSTS, NET CASH
EXCLUDING FLOWS
DEP’N CGU WITH GOODWILL
20X1 XX - XX = XX - PAS 36: CGU is tested for impairment at least
20X2 XX - XX = XX annually
20X3 XX - XX = XX a) Recoverable amount exceeds carrying amount =
XX - XX = XX not impaired
b) Carrying amount exceeds recoverable amount =
YEAR (a) (b) (a x b) recognize impairment loss
NET CASH PV of 1 PV Journal entry for impairment loss:
FLOWS Impairment loss xx
20X1 XX XX XX Goodwill (allocated to GW first) xx
20X2 XX XX XX Accumulated depreciation xx
20X3 XX XX XX
XX VALUE IN USE REVERSAL OF IMPAIRMENT LOSS ON GOODWILL
*same computation for impairment loss and same - PAS 36: impairment loss recognized for goodwill shall
entry* not be reversed in a subsequent period

REVERSAL OF AN IMPAIRMENT LOSS CHAPTER 36: INTANGIBLE ASSETS –

*solve for impairment
Asset
Accumulated depreciation (xx + xx)
Adjusting carrying amount
Depreciation for 2020
Carrying amount with impairment
Journal entry for impairment reversal
Accumulated depreciation xx
Gain on reversal of impairment
Computation:
Carrying amount – no impairment
Carrying amount – with impairment
Gain on reversal of impairment
*Carrying amount – no impairment = would have
been carrying amount as though it were not
impaired
CHAPTER 35: IMPAIRMENT OF ASSET
– CASH GENERATING UNIT(CGU)
xx
GOODWILL
(xx)  PAS 38: intangible asset - identifiable nonmonetary
xx asset without physical substance
(xx)  Essential criteria
xx a) Identifiability: separable and arises from
contractual or other legal rights
b) Control: power to obtain the future economic
xx benefits and restrict access
c) Future economic benefits: benefits resulting
xx from the use of the asset by the entity
(xx)  Recognition
xx a) Probable future economic benefits
b) Cost can be measured reliably
- Judgement: degree of certainty (based on
external evidence)
 Initial measurement (at cost)
SEPARATE ACQUISITION
- Cost = purchase price + import and non-refundable
taxes + directly attributable
 - Expensed immediately: “new”, administration and Net assets acquired at fair value (xx)
other general overhead, has yet to be brought into Goodwill xx
use, initial operating loss Journal entry to record the purchase
ACQUISITION AS PART OF A BUSINESS COMBINATION Cash xx
- Fair value on the date of acquisition Accounts Receivable xx
ACQUISITION BY WAY OF A GOVERNMENT GRANT Inventory xx
- Either fair value or nominal amount + expenditure PPE xx
Patent xx
directly attributable
Goodwill xx
ACQUISITION BY EXCHANGE Accounts Payable xx
- Fair value of the asset given plus any cash payment Notes Payable xx
- Lacks commercial substance: carrying amount of Accrued liabilities xx
asset given plus any cash payment Cash xx
ACQUISITION BY SELF-CREATION OR INTERNAL
GENERATION DIRECT APPROACH: GENERALLY
- Costs - Requires following information:
a) Materials and services generating intangible a) Normal rate of return
asset b) Fair value of tangible assets and identifiable
b) Employee benefits from generation of intangible assets
intangible asset c) Estimated future normal earnings
c) Fees to register a legal right d) Probable duration of any “excess earnings”
d) Amortization of patents and licenses DIRECT APPROACH – METHOD 1: Purchase of “average
- PAS 38: internally generated brands, mastheads, excess earnings
publishing titles, customer lists and items similar in Average earnings xx
substance = not intangible Normal earnings (xx)
 Identifiable vs. unidentifiable (ex. goodwill) Average excess earnings xx
- Identifiable: transfer of legal right; could be Goodwill (average excess x no. of years) xx
sold/transferred/licensed/rented separately
- Unidentifiable – identified with the entity as a DIRECT APPROACH – METHOD 2: Capitalization of
whole “average excess earnings”
 Classification Average excess earnings xx
a) Intangible assets with definite life – amortize; Divide by: capitalization rate %
useful life vs. legal life (w/c is shorter) Goodwill xx
b) Intangible assets with indefinite life – do not
amortize but test for impairment DIRECT APPROACH – METHOD 3:Capitalization of
 Amortization and impairment of intangible assets “average earnings”
- Amortization: systematic allocation of the Average earnings xx
amortizable amount over the useful life (Dr Divide by: capitalization rate %
Amortization expense; Cr Intangible asset account) Net assets, including goodwill xx
- Method: reflect the pattern in w/c future Net assets, excluding goodwill (S.H.E.) xx
economic benefits are consumed (if cannot be Goodwill xx
determined then use straight line method)
 Derecognition: on disposal of the asset or when no DIRECT APPROACH – METHOD 4: Present value method
future economic benefits are expected (Proceeds IMPAIRMENT
less Carrying amount = Gain or Loss) Average excess earnings xx
 Goodwill – most intangible and identified with the Multiply by: PV factor x
entity as a whole Goodwill xx
- Arises when earnings exceed normal earnings by
reason of good name (reputation, responding NEGATIVE GOODWILL
promptly and helpfully, and personality of the Purchase price xx
staff) Net assets acquired at fair value (xx)
- Continually changing Negative goodwill (xx)
- Recognition:
a) Developed or internal goodwill: “homegrown” Cash xx
and not recorded Accounts Receivable xx
b) Purchased goodwill: been paid for and Inventory xx
PPE xx
recognized
Patent xx
RESIDUAL APPROACH Accounts Payable xx
- Compares purchase price with the net tangible and Notes Payable xx
identifiable assets (meaning excluding goodwill) Accrued liabilities xx
- Net assets at fair value Cash (Purchase price) xx
- Excess of purchase price and fair value of net assets Gain on bargain purchase xx
= goodwill

Purchase price xx
 CHAPTER 37: IDENTIFIABLE - Impairment
Impairment Loss xx
INTANGIBLE ASSETS Patent xx
 Patent Computation:
- Exclusive right granted to an inventor to control Carrying amount xx
the use of invention for a specified period of time PV of cash flows (value in use) (xx)
- Legal life = 20 years (R.A. No. 8293) Impairment Loss xx
- Cannot be renewed but can be extended
- Technology-based intangible asset  Trademark
- Cost = purchase price + import duties + non- - Symbol, sign, slogan or name to distinguish
refundable taxes + directly attributable cost of - Market-related intangible asset
preparing for intended use - Purchased: price + directly attributable
- Internally developed (went through R & D): - Internally developed: expenditures to establish
includes licensing and legal fees - Successfully prosecuted: outright expense
- Research and development: expensed (time of (maintain)
technological feasibility development cost = - Legal life = 10 years
capitalized) - May be renewed → indefinite life → not amortized
- Cost of litigation - Impairment
 Successful = expensed (intended to maintain) Impairment Loss xx
 Unsuccessful = written off as loss Patent xx
- Amortization Computation:
 Internally developed = legal vs. useful (w/c is Carrying amount xx
shorter) PV of cash flows (value in use) (xx)
 Acquired from a patentee = legal vs. useful (w/c Impairment Loss xx
is shorter)
 Competitive patent (protect) = remaining life of  Copyright
old patent - Exclusive right to the author, composer or artist to
 Related patent (extend) = extended life; no benefit
extension = own life (remainder of its life) - Artistic related intangible asset
 Development of patent - Cost = expenses required to establish or obtain
Research and development expense xx right
Cash xx - Purchased: cash paid plus directly attributable
 Licensing of patent - Term for protection = during the life and 50 years
Patent xx after death
Cash xx - Reviewed for impairment
 Amortization - Amortization: useful life benefits, sales and
Amortization of Patent xx royalties are expected
Patent xx
 Successful defense  Franchise
Legal expenses xx - Franchisor grants to a franchisee
Cash xx - Contract based intangible asset
 Acquisition of competing patent - Between government and private entity: use public
Patent xx property
Cash xx - Between private entities: use trademark, patent
 Update amortization of patent and process
Patent xx - Cost = lump sum payment + directly attributable
Cash xx - Lump sum payment = initial franchise fee
Computation: - Periodic payment (periodic franchise fee) =
Original patent xx expense
Competing patent(xx/x) xx - Amortization
Total xx  Definite period = useful life vs. definite life (w/c
 Write off patent is shorter)
Patent written-off xx PERIODIC FRANCHISE FEE
Patent xx Franchise fee expense (%) xx
PATENT Cash xx
Original XX Amortization XX INITIAL FRANCHISE FEE
cost  Initial franchise fee
Competing XX Amortization XX Franchise xx
patent Cash xx
Amortization XX Note payable xx
Amortization XX  First installment
Write - off XX Note payable xx
XX XX Interest expense xx
Cash xx
 Amortization - PAS 38: expenditure on research = expense (too
Amortization of Franchise xx much uncertainty)
Franchise xx  Development
- Application of research findings
- Probability of success may be more apparent
 Lease Right - Criteria:
- IFRS 16  Technical feasibility of completing when a
- Initially recognize a right of use (separate line item) prototype or model is produced
asset and a lease liability  Intention to complete the intangible asset and
- Leasehold improvement: not cost; alteration and use or sell it
modification  Ability to use or sell
- Residual value of leasehold improvement: ignored  Produce probable future economic benefits
- Renewal option: too uncertain = ignored  Availability of resources or funding
- Renewal of the lease contract = highly probable pr  Ability to measure reliably the expenditure
certain  R & D can be capitalized if it has an alternative future
use
 Broadcasting license  Activities – prior to beginning of commercial
- Indefinite useful life production (if it relates to commercial production =
 Expires in 5 years do not result to R & D cost)
 Renewable  Internally developed computer software
 May be renewed indefinitely at little cost - Creating a computer software = expense until
 Contribute to net cash inflows indefinitely technical feasibility
- Definite useful life - So much uncertainty = expensed
 Expires in 3 years - Costs that actually produce the software from
 Will no longer renew but will auction the license masters and package the software for sale =
 Continue to contribute to net cash inflows inventory
 Cannot be renewed  Amortization – finite useful life
 Should be amortized over remaining useful life  Impairment – tested whenever there is an indication
of impairment at year-end
 Airline right  Classification of computer software
- Renewed every 5 years a) Intangible
- Routinely granted at a minimal cost b) For resale = inventory
- Indefinite useful life = not amortized c) Purchased as an integral part = PPE
 Customer list d) Not an integral part = intangible
- Database
- PAS 38: internally generated is not intangible asset
- Acquired customer list: may be intangible and is
amortized over useful life
- Purchase does not provide control by an entity
 Organization cost
a) Legal fees
b) Incorporation fees
c) Share issuance cost
- PAS 38: start up costs that include legal and
secretarial costs = expense
 Organization cost = expensed
 Share issuance costs = Dr to share premium
(excess = Dr to share issuance cost)
 Web site development cost
- Does not meet the requirement to be recognized
as an intangible asset
- Expensed as incurred

CHAPTER 38: RESEARCH AND

DEVELOPMENT COST – COMPUTER
SOFTWARE
 Research
- Original and planned investigation with prospect of
gaining scientific or technical knowledge and
understanding
- To discover new knowledge