PPE AND

BORROWING COST

CFAS - Angel Cantos

 What are the major
characteristics of PPE?
Property, Plant and Equipment
What are the major
characteristics of PPE?
a. The property, plant and equipment are tangible assets, meaning with
physical substance.

b. The property, plant and equipment are used in business, meaning

used in production or supply of goods or services, for rental purposes
and for administrative purposes.

c. The property, plant and equipment are expected to be used over a

period of more than one year.
 What is the initial
measurement of PPE?
Property, Plant and Equipment
Initial Measurement
An item of PPE that qualifies for recognition as an asset shall be
measure at cost.

Cost is the 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.
What are the elements of
cost?
Property, Plant and Equipment
Elements of cost
The cost of an item of property, plant and equipment comprise.

a. Purchase price, including import duties and nonrefundable purchase

taxes, after deducting discounts and rebates

b. Cost directly attributable to bringing the asset to the location and

condition for the intended use

c. Initial estimate of the cost of dismantling and removing the item for
which the entity has a present obligation.
What is the cost of an asset
acquired on a cash basis?
Property, Plant and Equipment
Acquisition on a cash basis
The cost of an item of property, plant and equipment is the cash price
equivalent at the recognition date.

The cost of asset acquired on a cash basis simply includes the cash
paid plus directly attributable costs such as freight, installation cost and
other cost necessary in bringing the asset to the location and condition
for the intended use.
What is the cost of an asset
acquired on account subject
to a cash discount?
Property, Plant and Equipment
Acquisition on account
When an asset is acquired on account subject to a cash discount, the
cost of the asset is equal to the invoice price minus the discount,
regardless of whether the discount is taken or not.

Cash discounts are generally considered as reduction of cost and not as

income.
 If an asset is acquired on the
installment basis, the asset is
recorded at what amount?
Property, Plant and Equipment
Acquisition on installment basis
When payment for item of PPE is deferred beyond normal credit terms,
the cost is the cash price equivalent.

If an asset is offered at a cash price and at an installment price and is

purchased at the installment price, the asset shall be recorded at the
cash price.
Define Borrowing Costs
Borrowing Costs
Borrowing Costs
Under PAS 23, borrowing costs are defined as interest and other
costs that an entity incurs in connection with borrowing of funds.

Borrowings costs are interest costs incurred as a result of

borrowings from banks and other financial institutions.

Borrowing can be classified as specific borrowing and general

borrowing.
Explain specific borrowing
Borrowing Costs
Specific Borrowing Costs
Specific borrowing is intended specifically in acquiring a qualifying
asset.
Explain specific borrowing
Borrowing Costs
General Borrowing Costs
A general borrowing is intended partly in acquiring a qualifying asset
and partyl for general or working capital purposes.
What is a qualifying asset for
purposes of capitalization of
borrowing cost?
Borrowing Costs
Qualifying asset
A qualifying asset is an asset the necessarily takes a substantial
period of time to get ready for the intended use or sale.

Examples:

a. Manufacturing plant
b. Power generation facility
c. Intangible asset
d. Investment property