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Ch6 Property, Pland and Equipment

The document discusses property, plant, and equipment accounting. It defines PPE and outlines major characteristics. Items qualify as PPE if they are tangible assets used in operations for over a year. PPE is initially recognized at cost and can be measured using the cost or revaluation model after recognition. The document details how to account for various methods of acquiring PPE, such as purchase, exchange, or issuance of shares.

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Krizia Jean Abbu
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16 views24 pages

Ch6 Property, Pland and Equipment

The document discusses property, plant, and equipment accounting. It defines PPE and outlines major characteristics. Items qualify as PPE if they are tangible assets used in operations for over a year. PPE is initially recognized at cost and can be measured using the cost or revaluation model after recognition. The document details how to account for various methods of acquiring PPE, such as purchase, exchange, or issuance of shares.

Uploaded by

Krizia Jean Abbu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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IE 222

Financial
Accounting
Property,
Plant and
Equipment
2
Definition
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”

3
Major characteristics in the definition

1. TANGIBLE ASSETS, meaning with physical substance

2. Used in business, meaning used in


▫ PRODUCTION OR SUPPLY OF GOODS OR SERVICES
▫ FOR RENTAL
▫ FOR ADMINISTRATIVE

3. Expected to be used over a period of MORE THAN ONE YEAR.


Accordingly these are classified as noncurrent assets.

4
Recognition of PPE
An item of PPE shall be recognized as an asset when:

1. It is probable that future economic benefits associated with the asset will flow to
the entity

2. The cost of the asset can be measured reliably.

Under this recognition principle, an entity shall evaluate all its PPE cost at the time they
are incurred.

These costs include costs incurred initially to acquire or construct an item or PPE and
costs incurred subsequently to add to, replace part of, or service it.

6
Spare parts and servicing equipment
Most spare parts and servicing equipment are usually carried as
inventory and recognized as an expense when consumed.

However, major spare parts and stand-by equipment qualify as


property, plant and equipment when the entity expects to use
them more than one period.

7
Measurement at recognition
An item of property, plant and equipment that qualifies for recognition as an
asset shall be measured 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.

8
Measurement at recognition
Elements of cost
1. Purchase price, including import duties and nonrefundable purchase
taxes, after deducting trade discounts and rebates.
2. Cost directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner
intended by management.
3. Initial estimate of the cost of dismantling and removing the item and
restoring the site on which it is located, the obligation for which an entity
incurs either when the item is acquired or as a consequence of having
used the item during a particular period

9
Directly attributable costs
1. Cost of employee benefits arising directly from
the construction or acquisition of the item of
PPE
2. Cost of site preparation
3. Initial delivery and handling cost
4. Installation and assembly cost
5. Professional fees
6. Cost of testing

10
Costs not qualifying for recognition
1. Cost of opening a new facility
2. Cost of introducing new product or services
3. Cost of conducting business in new location
4. Administration and other general OH cost
5. Initial operating losses
6. Costs of relocating or reorganizing part or all of
an entity’s operations.

11
Measurement after
recogntion
After initial recognition, an entity shall
choose either cost model or the
revaluation model as its accounting
policy shall apply that policy to an
entire class of PPE

12
o PPE are carried at cost less any
Cost Model accumulated depreciation and any
accumulated impairment loss

o PPE are carried at revalued amount,


Revaluation being the fair value at the date of
model revaluation less any subsequent
accumulated depreciation and
subsequent accumulated impairment
loss.

13
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. Donation
8. Government grant
9. Construction
14
Acquisition of property: Cash basis

15
Acquisition of property: Cash basis

16
Acquisition of property: On account

17
Acquisition of property: Installment basis

18
Acquisition of property: Issuance of share capital

Under Philippine GAAP, it concludes that if shares are issued for consideration
other than actual cash, the proceeds shall be measured by the fair value of the
consideration received.

Fair value is determined by making reference to the cash transactions of the same
or similar assets, quoted market prices and independent appraisals.

a. Fair value of the property received


b. Fair value of the share capital
c. Par value or stated value of the share capital.

19
Acquisition of property: Issuance of share capital

20
Acquisition of property: Exchange

21
Acquisition of property: Exchange

22
Acquisition of property: Trade In

Trade in is a form of exchange. This means that a property is acquired by


exchanging another property as part of payment and the balance payable in cash
or any other form of payment in accordance with agreed terms.

23
Acquisition of property: Trade In

24

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