Ibasco, Nina

Financial Accounting 2
Property, Plant, and Equipment

Property, Plant, and Equipment

Tangible assets held for use in production / supply of goods / services, for rental to others or for
administrative purposes, and are expected to be used during one period.

MAJOR CHARACTERISTICS (All Criterias must be met for it to be considered as PPE.)

1. Tangible Assets
 Has physical substance; assets that are seen are PPE

2. Used in Business
 Business is geared towards profit and done regularly, anything done in regularity is a
business.
 Assets used for production / supply of goods/ services, rentals or administrative purposes;
Land, building, equipment.

3. To be used more than 1 year

 Expected life is more than 1 year.
 Existence of historical record provides an estimate.
o Maski stapler na sadit magiging PPE pag pwede pakinabangan more than 1 year.

Prepaid Expenses – assets that are consumed ; assets na dai na napakinabangan more than 1 year.
Not all PPEs are Depreciable assets

INITIAL MEASUREMENT COST

PPEs are initially measured at cost.

COST

 Amount of cash or cash equivalent paid , and the fair value of the other consideration given to
acquire an asset at the time of acquisition or construction; Amount paid or given during
acquisition.

ELEMENTS OF COST

1. Purchase Price
o Magkano Binili
 o Non-refundable taxes – dai pwede ipasa sa iba ; and import duties – binili sa ibang
bansa
Cash discounts – whether or not taken, at the time of acquisition it is deducted; management
takes advantage of this discount.

2. Directly Attributable Cost

Costs necessary to bring the assets to its condition and location for intended use; necessary
costs para magamit ang PPE.

3. Dismantling Cost ( estimated)

 Costs from damages when PPE will be dismantled;

o restoration pakatapos halion ang sarong PPE sa original place niya;
o pagmay-ulayan na babawion saimo ang PPE - hihilingon ang gastos puon sa pagbakal
hanggang sa end kani.
o Measured at the end; If there is a deal or Present obligation it must be estimated
currently. (present value)

DIRECTLY ATTRIBUTABLE COST

Expenses to bring the asset on location and condition is capitalized – an asset account; they are
needed so they are considered as an asset.

 Inititial delivery and handling cost

 Installation and Assembling Cost
 Cost of site preparation
 Preparation kan paglalagyan.
 Professional Fees
 Technical expertise fee
 Cost of testing whether the asset is functioning properly
 Cost of employee benefits arising directly from the acquisition

COST NOT QUALIFYING FOR RECOGNITION –expensed outright

Not related to PPE ; PPE can function without these; PPE is ready for intended use.
Not directly attributable; not capitalized and expensed outright.

o Cost of opening a new facility

o Cost of introducing a new product or service ; includes cost of advertising and promotion.
o Cost of conducting business in a new location or with anew class of customer , including cost of
staff training.
o Administration and other general overhead
o Cost incurred while an item is capable of operating in the manner intended by management has
get to be brought in to use or is operating at less than full capacity ; pwede naman magamit.
o Initial operating losses.
o Cost of relocating or reorganizing part or all of an entity’s operation.