Property, plant, and equipment

Property, plant, and equipment (IAS 16)

a. Tangible items that are held by an enterprise for use in the production or supply of
goods or services, for rental to others, or for administrative purposes;
b. Expected to be used for more than one period.

- Measured initially at cost.

Components of cost:
a. Purchase price, including import duties and non-refundable purchase taxes, after
deducting trade discounts and rebates
b. Costs directly attributable to bringing the asset to the location and condition
c. Initial estimate of the costs of dismantling and removing the item and restoring the
site

- Purchase price of
Spare parts and servicing equipment
a. Inventory
b. PPE – if the entity expects to use them for more than 12 months.

Land
a. For sale – Inventory
b. For future plant site – PPE
c. For long-term capital appreciation, for currently undetermined future & for lease –
Investment property

Costs chargeable to land

a. Purchase price
b. Legal fees and other expenditures for establishing clean title
c. Broker or agent commission
d. Cost of relocation or reconstruction of property belonging to others in order to acquire
possession
e. Mortgages, encumbrances and interest on such mortgages assumed by the buyer
f. Unpaid taxes up to date of acquisition assumed by the buyer
g. Cost of survey
h. Payments to tenants to enduce them to vacate the land in order to prepare the land for
the intended use but not to make room for the construction of new building
i. Cost of permanent improvements such as cost of clearing, cost of grading, leveling and
landfill
j. Cost of option to buy the acquired land

If the land is not acquired, the cost of option is expensed outright.

k. Special assessments – taxes paid by landowner as a contribution to the cost of public

improvements

Land improvements
 - Depreciable; not permanent
- Ex: fences, water systems, drainage systems, sidewalks, pavements and cost of trees,
shrubs and other landscaping.

Building
a. For operations – PPE
b. Being leased-out – Investment property

Cost of building:
a. Purchase price (including liens)
b. Broker’s commission
c. Legal fees
d. Title and escrow fees
e. Reconditioning costs
f. Alteration and improvement costs
g. Permit fees for renovation or construction
h. Architect’s fees
i. Borrowing costs

Bearer-plant
- Living plant that is used in the production or supply of agricultural produce
- E.g., fruit trees, grape vines

Exchange of nonmonetary assets

An exchange transaction is always assumed to be a fair transaction, unless otherwise stated.

Does not lack commercial substance Lacks commercial substance

- if silent - if stated
- asset received is measured at fair value - asset received is recognized at carrying
amount (cost less acc. dep’n) of the asset
given up
- Gain/loss - No gain/loss

Borrowing costs
- Interest and other costs that an entity incurs in connection with borrowing of funds
(PAS 23, par 5)
Qualifying asset
- A discrete project of an enterprise that takes substantial period of time to get ready for
sale or for use

CASH DISCOUNT
- Taken or not, is deducted from purchase price

ACQUISITION BY EXCHANGE
-

ACQUISITION BY DONATION

a. Shareholder – credit to Donated Capital

b. Non-governmental unit – gain = fair value of the donated asset
- if accompanies w/ restrictions – credit to liability. when earned, transferred to
income
c. Governmental unit -

Government Grant (aka Subsidy, Subvention, or Premium)

- Assistance by government as assistance by government in the form of transfer of resources to an
entity in return for part or future compliance with certain conditions relating to the operating
activities of the entity (PAS 20, par 3).
- Shall not be recognized (profit or loss) until there is assurance that:
a. Entity will comply w/ the conditions; and
b. Grants will be received.
- Deferred credit account: Unearned Income from Government Grant

FS presentation of government grant

a. Related to asset – either deducted from asset to arrive at carrying amount or

alternatively, as Deferred Income under liability section

b. Related to income – Either “Other income” or alternatively, deducted from the related
expense

DEPRECIATION

Sum-of-the-years’ digits method

- Assets provide higher economic benefits during the early years, thus higher depreciation
expense in the earlier years