PROPERTY,

PLANT AND
EQUIPMENT
PAS16
 LEARNING OUTCOMES

To know and understand the recognition criteria,

To know the definition of property,
initial measurement and the items included of
plant and equipment.
property, plant and equipment

OBJECTIVES
To understand the subsequent
To identify specific measurement of property, plant and
items of PPE equipment as to cost model or revaluation
model.

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 PROPERTY, PLANT AND EQUIPMENT
✓ Are tangible assets that are held for use in
production or supply of goods or services, for
rental to others, or for administrative purposes,
and are expected to be used during more than
one period.

✓ Non-current asset
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MAJOR CHARACTERISTICS OF PPE

Tangible assets

Used in business, used in production of supply of goods and

services, for rental purposes and for administrative purposes.

Used over a period of more than one year.

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EXAMPLES OF PPE

LAND IMPROVEMENTS
LAND

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EXAMPLES OF PPE

BUILDING MACHINERY

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EXAMPLES OF PPE

SHIP AIRCRAFT

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EXAMPLES OF PPE

MOTOR VEHICLE FURNITURE AND FIXTURES

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EXAMPLES OF PPE

TOOLS BEARER PLANTS

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RECOGNITION
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RECOGNITION OF PPE

Probable that future

economic benefits
1
associated
The cost of with the asset will flow
the asset can to the entity.
2
be measured
reliably.

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 SPARE PARTS AND SERVICING
EQUIPMENT

Most spare parts and servicing equipment

➢ Inventory
➢ Expense when consumed

Major spare parts and stand-by equipment

➢ Property, plant and equipment
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 MEASUREMENT AT RECOGNITION

An item of PPE that qualifies for

recognition as an asset shall be measured
at COST.
Cost
➢ Is the amount of cash and cash equivalent paid and the fair
value of the other consideration given to acquire an asset at
the time of acquisition or construction.

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ELEMENTS OF COST

Directly
Purchase
attributable Removal cost
price
costs

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 Purchase price including:

› non-refundable purchase
taxes

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 EXAMPLE OF DIRECTLY ATTRIBUTABLE
COSTS

› Costs of employee benefits arising directly from the acquisition

of PPE
› Cost of site preparation
› Initial delivery and handling cost
› Installation and assemble cost
› Professional fees
› Costs of testing whether the asset is functioning properly

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Removal cost

▰ Initial estimate of the cost of dismantling

and removing the item and restoring the
site on which it is located for which an
entity has a present obligation.

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 COSTS NOT QUALIFYING FOR
RECOGNITION

Examples of costs that are EXPENSED rather than recognized as element of cost
of PPE.
▰ Costs of opening a new facility
▰ Costs of introducing a new product or service, including costs of advertising and
promotion.
▰ Costs of conducting business in a new location or with a new class of customer,
including costs of staff training.
▰ Administrative and other general overhead costs
▰ Costs incurred while an item capable of operating in the manner intended by
management has yet to be brought into use or is operated at less than full
capacity.
▰ Initial operating losses
▰ Costs of relocating or reorganizing part or all of an entity’s operations. 18
ACQUISITION OF
PROPERTY
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ACQUISITION OF PROPERTY

1. Cash basis
2. On account subject to cash discount
3. Installment basis
4. Issuance of share capital
5. Issuance of bonds payable
6. Exchange
7. Donations
8. Government grant
9. Construction 20
 MEASUREMENT COST

COST OF ASSET: Cash price equivalent at

recognition date

Cash paid
+ Directly attributable
costs 21
 3. ACQUISITION ON INSTALLMENT BASIS

COST OF ASSET: Cash price equivalent not the

installment price

▰ The excess of the installment price over

the cash price is treated as an interest
to be amortized over the credit period

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ILLUSTRATION: A machinery is purchased at an installment price of ₱350,000. The terms
are ₱50,000 down and the balance payable in three equal annual installments.
The cash price of the machinery is ₱290,000. A promissory note is issued for the
installment balance of ₱300,000.
JOURNAL ENTRIES:
Outstanding method of
1. To record the acquisition of the machinery amortization
Machinery 290,000
Discount on note payable 60,000
Note payable 300,000
Cash 50,000
2. To record the first installment payment
Note payable 100,000
Cash 100,000
3. To amortize the discount on note payable
Interest expense 30,000
Discount on note payable 30,000
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 6. EXCHANGE

COST OF ASSET: Fair value

1. Fair value of asset given up

2. Fair value of asset received
3. Carrying amount of asset given up

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Subsequent
measurement
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 MEASUREMENT AFTER RECOGNITION
“The entity shall apply such accounting policy to an entire class
of PPE.”
COST MODEL
- It means that PPE are carried
AT COST less any accumulated
depreciation and any
accumulated impairment loss.
REVALUATION MODEL
- It means that PPE are carried at
REVALUED CARRYING AMOUNT
which is the fair value at the date of
revaluation less any subsequent
accumulated depreciation and
subsequent accumulated impairment
loss.
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COST MODEL

▰ Cost is “the amount of cash or cash equivalents paid or

the fair value of the other consideration given to acquire
an asset at the time of its acquisition or construction or,
where applicable, the amount attributed to that asset
when initially recognized in accordance with the specific
requirements of other PFRSs.”

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COST MODEL

▰ Depreciation - is the systematic allocation of the

depreciable amount of an asset over its estimated useful
life.
▰ Straight-line method of Depreciation - depreciation is
recognized evenly over the life of the asset by dividing
the depreciable amount by the estimated useful life.

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 illustration

On January 1, 2017, Entity A acquires equipment for a total cost of

P1,000,000. The equipment is estimated to have a useful life of 5 years
and a residual value of P50,000. How much is the carrying amount of
the equipment on December 31, 2019?

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REVALUATION MODEL

▰ Fair value is “the price that would be received to

sell an asset or paid to transfer a liability in an
orderly transaction between market participants at
the measurement date.”

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ILLUSTRATION

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Solution

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 Additional notes

▰ If replacement cost is given. Then compute first the accumulated

depreciation using the replacement cost as of that date of
appraisal.
▰ Then compare with the computed carrying amount.
▰ The result is the revaluation surplus.

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 illustration:
On January 1, 2014, RR Company acquired a building at a cost of
₱5,000,000.The building has been depreciated on the basis of a 20-year
life.
On January 1, 2019, an appraisal of the building showed replacement cost
at ₱ 8,000,000 with no change in useful life.
What amount should be credited to revaluation surplus on January 1,
2019?

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Solution

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Journal Entries in 2019:

Building 3,000,000
Accumulated Depreciation 750,000
Revaluation Surplus 2,250,000
Depreciation 400,000
Accumulated Depreciation 400,000

Revaluation surplus 150,000

Retained Earnings 150,000

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 DERECOGNITION

Means that the cost of the PPE

together with the related
accumulated depreciation shall
be removed from the accounts.
PAS16, paragraph 67
An asset is derecognized when:
a. Classified as held for sale
b. When no future economic benefits are
expected from the use of disposal
Net proceeds
Less: Carrying amount)
Gain/loss on disposal
shall be included in profit or loss.
Gain is treated as other income
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