BSOM 1G

PROPERTY, PLANT &

EQUIPMENT
GROUP 4
CONTENT: SUB TOPIC
01 LEARNING OBJECTIVES OF PP&E

02 PROPERTY, PLANT AND EQUIPMENT..

03 INVESTING, LIQUIDATING & ACCOUNTING FOR PP&E

04 DEPRECIATION

05 CALCULATION OF DEPRECIATION

06 HOW TANGIBLE AND INTANGIBLE DIFFER

07 HOW ARE FIXED ASSETS REPORTED ON THE

BALANCE SHEET
LEARNING
OBJECTIVES:
After this presentation of our group we hope
and will do our very best for you to identify
processes involved in the acquisition of
property, plant & equipment.

You must be able to understand the different

methods of computing for depreciation. And
also the importance of PP&E on different
businesses
PROPERTY PLANT &
EQUIPMENT
Speaker:
Noemi Binalingbing &
Raiza Nicole Perez
 PROPERTY, PLANT, AND
EQUIPMENT
What is PP&E? Property, plant, and equipment (PP&E) are long-term assets
vital to business operations and not easily converted into
cash. Property, plant, and equipment are tangible assets,
meaning they are physical in nature or can be touched. The
total value of PP&E can range from very low to extremely
high compared to total assets. It is important to note when
calculating equity.

Property, plant, and equipment are also called fixed

assets, meaning they are physical assets that a
company cannot easily liquidate.
PP&E are long-term assets vital to business operations
and the long-term financial health of a company.
Purchases of PP&E are a signal that management has
faith in the longterm outlook and profitability of its
company
EXAMPLES OF PP&E
01 LAND

02 EQUIPMENTS

03 VEHICLES

04 MACHINARY

05 FURNITURE

06 INVENTORY

07 SECURITIES LIKE STOCKS, BOND

AND CASH AND ETC.
 PP&E IN

PP&E is recorded on a
A company investing in PP&E
PP&E may be liquidated company's financial
is a good sign for investors.
when they are no longer of statements, specifically on
A fixed asset is a sizable
use or when a company is the balance sheet. PP&E is
investment in a company's
experiencing financial initially measured according
future.Purchases of PP&E are
difficulties. to its historical cost, which
a signal that management
is the actual purchase cost
has faith in the long-term
and the costs associated
outlook and profitability of
with bringing assets to its
its company.
intended use.

INVESTING LIQUIDATING ACCOUNTING

PP&E FORMULA
AND CALCULATION
To calculate PP&E add the amount of
gross property, plant, and equipment,
listed on the balance sheet, to capital NET PPE=GROSS
expenditures. Next, subtract PPE+CAPITAL
accumulated depreciation from the
result. EXPENDITURES−
As a reminder, accumulated depreciation
is the total amount of a company's cost
ADWHERE:AD=
allocated to depreciation expense since ACCUMULATED
the asset was put into use. Depreciation is
the process of allocating the cost of a DEPRECIATION
tangible asset over its useful life and is
used to account for declines in value. In
most cases, companies will list their net
PP&E on their balance sheet when
reporting financial results, so the
calculation has already been done.
To calculate PP&E, add the amount of gross property,
plant, and equipment, listed on the balance sheet, to
capital expenditures. Next, subtract accumulated
depreciation. The result is the overall value of the
PP&E. It's often referred to as the company's book value.
 4 KEYS WHEN
ACCOUNTING FOR PP&E
 INITIAL DEPRECIATION REVALUATION RECOGNITION
RECOGNITION (DISPOSAL)
At initial recognition,
Depreciable amount is A revaluation is a Recognition is the
an entity measures a
the cost of an asset, or calculated upward recordation of a
financial asset or a
other amount adjustment to a business transaction in
financial liability at its
substituted for cost, country's official an entity's accounting
fair value plus or records. For example, a
less its residual value. exchange rate relative
minus, in the case of a loss can be recognized
Depreciation is the to a chosen baseline,
financial asset or a on a lower of cost or
systematic allocation of such as wage rates,
financial liability not at market analysis,
the depreciable amount the price of gold, or a
fair value through thereby recording the
of an asset over its foreign currency. In a
profit or loss, loss in the accounting
useful life. fixed exchange rate
transaction costs that records.
regime, only a
are directly
country's government,
attributable to the
such as its central
acquisition or issue of
bank, can change the
the financial asset .
official value of the
currency.
DEPRECIATION
Speaker:
Annalyn Mae Villamoran
&
Frism Cruz
 WHAT IS DEPRECIATION?
Depreciation of fixed assets must be
calculated to account for the wear and tear on
business assets over time. As depreciation is a
non-cash expense, the amount must be
estimated. Each year a certain amount of
depreciation is written off and the book value
of the asset is reduced
In accounting terms, depreciation is defined as
the reduction of recorded cost of a fixed asset in
a systematic manner until the value of the asset
becomes zero or negligible.
An example of fixed assets are buildings,
furniture, office equipment, machinery, etc. The
land is the only exception that cannot be
depreciated as the value of land appreciates with
time.
EXAMPLE OF DEPRECIATION
An example of Depreciation – If a delivery truck is
purchased a company with a cost of Rs. 100,000 and the
expected usage of the truck are 5 years, the business might
depreciate the asset under depreciation expense as Rs.
20,000 every year for a period of 5 years.
 THREE MAIN INPUTS ARE REQUIRED
TO CALCULATE DEPRECIATION:
Useful life Salvage value The cost of the
this is the time period Post the useful life of the fixed asset, the
asset
over which the company may consider selling it at a this includes taxes,
organization considers reduced amount. This is known as the shipping, and
the fixed asset to be salvage value of the asset. preparation/setup
productive. Beyond its expenses.
useful life, the fixed
asset is no longer
cost-effective to
continue the operation
of the asset.
TYPES OF DEPRECIATION
These three methods commonly used to calculate
depreciation. They are:
This is the simplest
method of all. It involves
a simple allocation of
an even rate of
depreciation every year
over the useful life of
the asset
STRAIGHT-LINE
DEPRECIATION
METHOD
This is one of the two
common methods a
company uses to
This is a two-step
account for the
process, unlike the
expenses of a fixed
straight line method.
asset. This is an
Here, equal expense
accelerated
rates are assigned to
depreciation method.
each unit produced.
This assignment makes
the method very useful
DOUBLE
in assembly for
production lines.
DECLINING
UNIT OF METHOD
PRODUCTION
METHOD
 STRAIGHT-LINE DEPRECIATION METHOD
FORMULA: Annual Depreciation expense = (Asset cost – Residual Value) / Useful
life of the asset
Example – Suppose a manufacturing company purchases machinery for Rs.
100,000 and the useful life of the machinery are 10 years and the residual value
of the machinery is Rs. 20,000 Annual Depreciation expense = (100,000-
20,000) / 10 = Rs. 8,000
 UNIT OF PRODUCTION METHOD
This is a two-step process, unlike the straight line method. Here, equal expense
rates are assigned to each unit produced.

The steps are:

Step 1: Calculate per unit depreciation: Per unit Depreciation =

(Asset cost – Residual value) / Useful life in units of
production

Step 2: Calculate the total depreciation of actual units

produced: Total Depreciation Expense = Per Unit Depreciation
* Units Produced
Example: ABC company purchases a printing press to print flyers for
Php. 40,000 with a useful life of 180,000 units and a residual value of
Php 4000. It prints 4000 flyers.

Step 1: Per unit Depreciation = (40,000-4000)/180,000 = Php 0.2

Step 2: Total Depreciation expense = Rs. 0.2 * 4000 flyers = Php. 800

So, the total Depreciation expense is Php. 800 which is accounted.

Once the per-unit depreciation is found out, it can be applied to
future output runs.
 DOUBLE DECLINING METHOD
This is one of the two common methods a company uses to account for the
expenses of a fixed asset. This is an accelerated depreciation method. As the
name suggests, it counts expense twice as much as the book value of the asset
every year.

The formula is:

Depreciation = 2 * Straight-line depreciation percent * book

value at the beginning of the accounting period

Book value = Cost of the asset – accumulated depreciation

Accumulated depreciation is the total depreciation of the
fixed asset accumulated up to a specified time.
Example: On April 1, 2012, company X purchased equipment for Rs. 100,000. This is
expected to have 5 useful life years. The salvage value is Php. 14,000. Company X
considers depreciation expense for the nearest whole month.

Calculate the depreciation expenses for 2012, 2013, 2014 using a declining
balance method.

Useful life = 5

Straight line depreciation percent = 1/5 = 0.2 or 20% per year

Depreciation rate = 20% * 2 = 40% per year

Depreciation for the year 2012 = Php 100,000 * 40% * 9/12 = Php 30,000

Depreciation for the year 2013 = (Php. 100,000-Rs. 30,000) * 40% * 12/12 =
28,000

Depreciation for the year 2014 = (Php 100,000 – 30,000 – 28,000) * 40% *
9/12 = 16,800
Depreciation table is shown below

Depreciation for 2016 is Rs. 1,120 to keep the book value the same as salvage value.

Rs. 15,120 – Rs. 14,000 = Rs. 1,120 (At this point the depreciation should stop)
 Why should small businesses care to record depreciation?

Over the useful life of the fixed asset, the cost is moved from
balance sheet to income statement. Alternatively, it is just an
allocation process as per the matching principle instead of a
technique that determines the fair market value of the fixed asset.

Accounting entry – DEBIT depreciation expense account and

CREDIT accumulated depreciation account