Accounting Property, Plant and Equipment

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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 The num!er o# production or similar units expected to !e o!tained #rom

the asset !y the enterprise$

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

)uilding * i& con$tructed

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$

(ac+inery, Equipment, Furniture and Fi,ture$

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$

,ormal repairs and maintenance on ))E

COSTS NOT CAPITALI/E 5$ Interest on de!t incurred to purchase plant assets are not capitali(ed$ 2$ The cost o# training employees to use plant assets is not capitali(ed$ 3. Annual property taxes and insurance costs are not capitali(ed$ 4. Expenditures that result #rom accidents& neglect& intentional a!use& and the#t are recogni(ed as losses$

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PPE RETIRE(ENT AN

ISPOSALS

An item o# ))E should !e eliminated #rom the !alance sheet on disposal or

'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

NOTES4 .epreciation !egins 'hen an asset is a aila!le #or use$

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

Cr7 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

FINANCIAL STATE(ENT PRESENTATION .iscount Lost 4 Finance Cost

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Loss on Sale o# )roperty

4 :ther Expense

0ain on Sale o# )roperty "" :ther Income

/hsalendrez