Professional Documents
Culture Documents
For ACTBAS 2
CLASSIFICATION
1. 2. 3. 4. 5. 6.
Land Building Equipment Machinery Furniture and Fixtures Land Impro ements
NATURE OF PPE
are tangi!le long"li ed assets o# used in the operations o# the !usiness and not held #or sale$
EFINITION Property, plant and equipment are tangi!le assets that% Are held !y an enterprise #or use in the production or supply o# goods or ser ices& #or rental to others& or #or administrati e purposes& and Are expected to !e used during more than one period$ Carrying amount !"alue# is the amount at 'hich an asset is recogni(ed in the !alance sheet a#ter deducting any accumulated depreciation$ Co$t is the amount o# cash equi alent paid& or the #air alue o# the other consideration gi en to acquire an asset at the time o# its acquisition o# construction$ eprecia%le co$t !amount# is the cost o# an asset or other amount su!stituted #or cost less its residual alue$ epreciation is the systematic allocation o# the deprecia!le amount o# an asset o er its use#ul li#e$ Re$idual "alue is the net amount 'hich the enterprise expects to o!tain #or an asset at the end o# its use#ul li#e a#ter deducting the expected cost o# disposal$ U$e&ul li&e is either% The period o# time 'hich an asset is to !e used !y the enterprise
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RECO'NITION ))E should !e recogni(ed as an asset 'hen the #ollo'ing conditions are all present% It is pro!a!le that #uture economic !ene#its associated 'ith the asset 'ill #lo' to the enterprise* and The cost o# the asset can !e measured relia!ly Initially& measure and recogni(e ))E at cost CO(PONENTS OF COST
1. Cost o# ))E comprises its purchase price& including import duties and
nonre#unda!le purchase taxes a#ter deducting trade and cash discounts$ 2. Any directly attri!uta!le cost o# !ringing the asset to 'or+ing condition and intended use$ ,ote% Cash discount 'hether ta+en or not ta+en is deducted #rom the in oice price #or purposes o# aluing the asset$ Land
1. )urchase price 2. Legal #ees and other expenditures #ro esta!lishing clean title 3. Cost o# relocation or reconstruction or property !elonging to others in order to
acquire possession
4. Bro+er-s commission 5. Fees #or registration and trans#er o# title 6. Sur eying #ees 7. Mortgages& encum!rances and interest on such mortgages assumed !y !uyer 8. .elinquent real estate taxes assumed !y !uyer 9. /a(ing or remo ing un'anted !uildings& less any sal age alue 10. 0rading and le eling 11. )ayments to tenants to induce them to acate the premises 12. Special assessments #or pa ing a pu!lic street !ordering the land including
side'al+s& se'ers& 'aterlines and streetlights$ )uilding * i& acquired
1. 2. 3. 4.
)urchase price /ealtor commissions Legal #ees and other expenses incurred in connection 'ith the purchase /econditioning& reno ation and remodeling costs to put a !uilding in a condition suita!le #or its intended use$ 5. Interest& liens and other encum!rances on the !uilding assumed !y the !uyer 6. )ayments to tenants to induce them to acate the !uilding
1. 2. 3. 4. 5. 6. 7. 8. 9.
Architect #ees Engineer #ees Insurance costs incurred during construction Construction costs 1la!or& materials and o erhead2 Exca ation costs Interest on money !orro'ed to #inance construction 3al+'ays to and around the !uilding )ermits #rom go ernment agencies Costs o# temporary !uildings used as construction o##ices and tools or materials shed$
1. 2. 3. 4. 5. 6. 7. 8.
)urchase price 1net o# trade and cash discounts2 Freight& handling& storage and other cost related to the acquisition$ Insurance 'hile in transit Installation cost& including site preparation and assem!ling Cost o# testing and trial runs #or use Modi#ying #or use /epairs 1purchase o# used equipment2 /econditioning 1purchase o# used equipment2
CAPITAL E-PEN ITURES 4 expenditures that increase the alue o# the ))E$
Increase in the capacity o# the asset Extension o# use#ul li#e Impro ement o# the quality o# output Increase in the asset-s e##iciency
RE.ENUE E-PEN ITURES 4 expenditures that are chargea!le to current operations 1recorded as an expense2$
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PPE RETIRE(ENT AN
ISPOSALS
'hen the asset is permanently 'ithdra'n #rom use and no #uture economic !ene#it are expected #rom its disposal$ 0ains and losses #rom retirement or disposal should !e recogni(ed in the income statement$ Loss on sale 6 Carrying alue o# the ))E sold 0 Cash proceeds #rom sale 0ain on sale 6 Carrying alue o# the ))E sold 1 Cash proceeds #rom sale
EPRECIATION
2IN S OF EPRECIATION
5$ P+y$ical epreciation 4 related to the assets- 'ear and tear and deterioration o er a period o# time$ 2$ Functional or Economic epreciation 4 due to o!solescence and inadequacy$
Straig+t3line met+od4 Annual depreciation 6 Cost 4 Scrap alue Est$ use#ul li#e in years
The #actors o# depreciation are% 1. Depreciation base / depreciable cost " the cost or other !asic alue o# the
asset 'hich includes all expenditures relating to the acquisition and preparation #or use$ 2. Scrap alue 7 residual alue 7 sal age alue4 the amount estimated to !e reco ered 'hen the asset is retired #rom use$ 8$ Estimated use#ul li#e4 the expected economic or ser ice li#e o# the asset$ It can !e expressed in terms o# Time periods in years or months 3or+ing hours or ser ice hours 9nits o# output or production
.epreciation does not cease 'hen the asset !ecomes idle or is retired #rom
acti e use unless the asset is #ully depreciated$
))E that are classi#ied as held #or sale shall not !e depreciated$ ))E classi#ied as held #or sale must !e presented separately on the #ace o#
the !alance sheet$
PRO3FOR(A ENTRIES
Acqui$ition o& Property Cash :n account Full payment !Note4 T+e account title 5Property6 $+ould %e $peci&ied# )roperty Cash )roperty Accounts paya!le
r7 xxx xxx
Net Method " 'ithin discount period " !eyond discount period Accounts paya!le Cash Accounts paya!le .iscount lost Cash ;ear"end ad<usting entry #or depreciation Sale o# property " at a gain .epreciation expense Accumulated depreciation " )roperty Cash Accumulated depreciation )roperty 0ain on sale on sale o# property Cash Accumulated depreciation Loss on sale o# property )roperty xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx
" at a loss
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4 :ther Expense
/hsalendrez