PROPERTY PLANT AND EQUIPMENT PAS 16

a. held for use in production or supply of goods and services, for rental or for
administrative purposes
b. expected to be used more than one period
INITIAL RECOGNITION
a. Probable future economic benefit will flow to the entity
b. Cost can be measured reliably
RECOGNITION ISSUES
Spare parts and servicing equipment
Inventory if it support PPE PPE must be PPE if expected to be used during more
than 1 period
Major spare part, standby and servicing equipment
Inventory whether or not it support PPE, unless it meets the definition of PPE
Safety and environmental equipment
PPE it enable future economic benefit from related assets
INITIAL MEASUREMENT
Cost
INITIAL MEASUREMENT
COST
1. Component of cost
Purchase price
Import duties and non-refundable taxes (VAT excluded if it is claimable as input
VAT)
any directly attributable costs of bringing the asset to working condition for its
intended use
*Any trade discount, rebates and similar items are deducted to cost of Purchase
DIRECTLY ATTRIBUTABLE COSTS (TRIED-P2)
1.
Preparation of site costs
2.
Delivery and handling cost
3.
Installation and assembly cost
4.
Testing cost (net of proceeds from selling samples when testing)
5.
Estimated Dismantling costs, Removing the asset or Restoring the site (extent of
recognized provision)
6.
Professional Fees (Architect and Engineers)
7.
Employee benefits arising from construction or acquiring PPE
MACHINERY COST WHEN PURCHASED
Machinery is moved to new location
1.
Consultants fees (advice on acquisition of property)
Old Installation cost (Undepreciated)
2.
Construction of base (safety rail and platform cost)
expensed
3.
Purchase price
New installation cost charged to
4.
Non-refundable sales tax (excluding VAT)
New asset
5.
Insurance while in transit
6.
Freight, handling and storage cost (related to acquisition)
Machinery is removed and retired
7.
Unloading charge
Old Installation cost (Undepreciated)
8.
Installation cost (site preparation and assembling)
expensed
9.
Testing and trial run (necessary in preparing machinery for use)
10.
Water device to keep machine cool
11.
Adjustment cost (operational efficiency and increase capacity)
12.
Estimated Dismantling cost, removing the machinery and restoring site on which it is
located

*Damage during installation or testing - expense

*Royalty payment on machines not PPE
based on units produced
Manufacturing Overhead
based on units produced and sold Selling Expense

LAND ACCOUNT
ITEMS
Land used as a Plant site
Land currently undetermined use
Land for long term appreciation
Land held for building site for future
investment property
Land leased out under operating lease
Land definitely for future plant site
Land sold in ordinary course of business
Land held for sale under PFRS 5

TREATMENT
PPE
Investment Property
Investment Property
Investment Property
Investment Property
PPE (Owner occupied property)
Inventory
Classified as NCA asset held for sale
(current asset)

LAND COSTS
1.
Purchase price
2.
Option Price (only if land is acquired, otherwise expense)
3.
Earnest money (down payment made by purchaser of real estate)
4.
Unpaid Real property tax (up to date assumed by the buyer)
5.
Liabilities assumed by the buyer( mortgages, encumbrances, interest)
6.
Escrow fees and Brokers and Agents commission
7.
Registration of land and transferring the title costs
8.
Legal fees to establish clean title
9.
Payment to tenant to vacate the premises
10.
Relocation cost/ Reconstruction property (who are occupying the land)
11.
Draining and filling the land
12.
Survey costs
13.
Cost of permanent improvement
14.
Cost of clearing (net of salvage proceeds excluding demolition costs)
*Razing old building
SPECIAL NOTES:
1. Land Improvements
a. Not depreciable
capitalizable cost of land
Surveying cost

Clearing Grading
Leveling
Subdividing

b. Depreciable Building (if part of blueprint), Land Improvement (not part of

blue print)
Fences and Side Landscaping
walks
(Shrub,trees)
Water or Drainage
Pavement and
system
Parking lot
2. Special Assessment capitalizable cost of land
3. Real property tax expensed when incurred. However on acquisition capitalized if
assumed by buy

BUILDING ACCOUNT
ITEMS
Building used as
plant site
Building developed
for future as
investment property
Building owned and
leased out under
operating lease
Building owned and
leased out under
finance lease
Building in ordinary
course of business
Building held for sale
under PFRS 5

TREATMENT
PPE

Investment property

Investment Property

Not recorded in books of

company

Inventory

Classified as NCA held

for sale presented as
current asset

1.
2.
3.
4.
5.
6.
1.
2.
3.
4.
5.
6.
7.
8.

BUILDING COST WHEN PURCHASED

Purchase price
Legal fees and other expenses (in connection with the purchase)
Real property tax (up to date assumed by buyer)
Liabilities assumed by the buyer ( encumbrances, mortgage, interest)
Payment to tenant to vacate the premises
Renovation and remodelling costs

BUILDING COST WHEN CONSTRUCTED

Construction cost
Architect fee
Supervision fee
Building permit and license
Fixtures and service equipment (permanent part of structure)
Excavation cost
Cost of security fences and temporary buildings while construction
Expenditure incurred (interest, construction loans and insurance)

SPECIAL NOTES:
1. Insurance
Taken during construction Building
Taken after construction
expense
Not taken and there is claim
claim for damage is expense
2. Building Fixtures
Immovable
Building
Movable
Furniture and fixtures (depreciated over
useful life)
3. Savings on Construction not recognized

 ACQUISITION OF LAND AND BUILDING

1. Building unusable or

demolished right away/ immediately

Old building
Purchase Price allocated fully
to Land
Demolition cost capitalized
also to new bldg

2. Old Building was acquired current reporting period (this year) and did
not use it prior to demolition.
With the intention to demolish old bldg and to replace new bldg.
New building will be

classified as:
P
In
I

Old
building

La

Carrying
value
(CV) of
old
building
Cost of
New
building

Construction
C cost

+
demolition cost
+
+ Allocated
CV of old bldg

3. Old Building was acquired prior reporting period (last year) and used
it as owner-occupied property.
This year entity decide to demolish old bldg and to replace new bldg.
New building will be

classified as:
P
In

Cost of
Old
building
Carrying
value @
demolitio
n date
Cost of
New

Allocate purchase price to Land and

Bldg using relative FV.
Depreciate old bldg over useful life.
Will also be added to depreciation, so
old bldg will have nil value
Construction cost + demolition cost

building
*Rationale of allocation: Allocated because Building is subject to
depreciation while Land is not.

 ACQUISITION OF PROPERTY

1. CASH ACQUISITION cash or cash equivalent paid + other costs bringing the asset to
working condition

*basket price = Cash paid allocated to FV or appraisal value

2. ACQUISITION ON ACCOUNT invoice price less discount (taken or not) + other costs
bringing the asset to working condition

GRO
NET
SS
METH
MET
OD
HOD
Acqui
Equi
Equip
sition
pme
ment
date
nt

Accounts
Accounts
payable(gross)
payable(net)

Cash (if any other

Cash (if any other
costs)
costs)

Paym
Acco
Accou
ent
unts
nts
withi
paya
paya
n
ble
ble
disco
unt
perio
d

Equipment
Cash
(discount)

Cash

Paym
Acco
Accou
ent
unts
nts
beyo
paya
paya
nd
ble
ble
disco
unt
perio
d

Purc
Purch
hase
ase
disc
disco
ount
unt
lost
lost

Equipment
Cash
(discount)

Cash

3. DEFFERED SETTLEMENT ACQUISITION payment is deferred beyond normal credit

terms
a. There is available cash price = cash or cash equivalent paid at acquisition date

 * Total payment - cash price = interest over period of credit (unless recognized
in carrying amount)
b. No available cash price = PV of all payment using imputed interest rate*

4. INSTALLMENT ACQUISITION

5. SHARE CAPITAL ISSUANCE

1) FV of property receivedGain on exchange = Credit Share
2) FV of property issued premium
3) BV of property issued Loss on exchange = Debit Share

6. BONDS PAYABLE ISSUANCE

1) FV of property issued
2) FV of property received
3) BV of property issued

7. EXCHANGE

With Commercial Substance (significant change relative to the FV of asset

exchanged)
Cash is
No Cash is involved
involved
With Commercial Substance * Gain/ Loss is fully
Payor:
recognized
Add Cash
1. FV of asset given
payment
2. FV of asset received
to asset
3. BV or cost of asset given

up
Recipient:

Deduct
No commercial substance * No Gain or Loss is
Cash
recognized
receive to
1. BV or carrying amount of
asset
asset given up

8. TRADE IN

Asset is recorded in following priority

1. FV of asset given up + cash payment. (G/L is recognized)

FV of asset given up

(BV of asset given up) ______

Gain or Loss (fully recognized)

2. Trade-in value of asset given + cash payment (G/L is recognized)

Trade-in value of asset given up

Cash price w/o Trade-in or
list price

(BV of asset given up) ______

(Cash price w/ Trade-in)___
Gain or Loss (fully recognized)
Trade in value or allowance

9. DONATION asset is recorded @FV when received or receivable

Shareholders

Donation

Donated Asset (ex.

Land)

Donated Capital

Expense in
connection to
donation
(registration and
legal fees)

Donated Capital

Cash

Directly attributable
cost incurred
subsequently
(Installation and
testing necessary to
bring donated asset
to location and
condition for
intended use)

Donated Asset

Cash

Non-shareholders
No restriction
imposed

Subsidies

Restriction are
imposed

Donated Asset

Liability ( when met credit to

income / DC)

Donated Asset

Direct Expense
(Real estate tax,
transfer tax)

Donated Asset

Cash

10. CONSTRUCTION
Direct Materials
Direct Labor
Indirect cost and increment overhead traceable to contstruction

*basis of DL hrs or DL cost if not specifically identified

*Savings or loss on construction not recognized
*Intervening operation not necessary to bring asset to location/condition for intended
use- recognized in P/L

DERECOGNITION cost of PPE and related A/D is removed from the

accounts

Carrying amount is derecognized when no future economic benefits

(Net disposal proceeds)_____________________________________

Gain or loss included in P/L ( Gain not revenue but treated as other income)

FULL DEPRECIATED PROPERTY carrying amount is equal to zero or

residual value
Asset still in service must not remove from accounts

depreciated

PROPERTY HELD FOR SALE asset available for immediate sale w/in 1
yr from date held for sale
Excluded from PPE and present as Current Asset and shall not be
Lower of Carrying amount

VS

FV less cost of disposal

a.
b.
a.
b.

Impairment loss if write down to FV less cost of disposal

IDLE OR ABANDONED PROPERTY still PPE until end of economic life
GOVERNMENT GRANT assistance by government in form of transfer of
resources to an entity in return for past or future compliance with
conditions relating to the operating activities of the entity
*forgivable loan is a government grant when there is reasonable
assurance that entity will meet the term for forgiveness of the loans.
* NIL or below market value of interest Loan is a government grant =
(Face amount PV of loan)

RECOGNITION AND MEASUREMENT

Measured at FV when there is reasonable assurance that:
Entity will comply with the condition attached to the grant
Grant will be received

CLASSIFICATION OF GOVERNMENT GRANT

Grant related to asset
whose primary condition is to purchase, construct or
acquire long-term asset
Grant related to income
other than grant related to asset

ACCOUNTING FOR GOVERNMENT GRANT recognized income on

systematic basis over the period
Grant is taken to income over one or more period in which the related
cost is incurred
GRANT
GRANT INCOME
RECOGNITION
In recognition of
Over the period of the
specific expenses
related expenses
Related to
in proportion to
depreciable assets
depreciation of related
asset
Related to
Over the period which bear
nondepreciable
the cost of meeting the
assets w/ condition
condition
as compensation
In the period it becomes
for losses or
receivable
expenses
(giving immediate
financial support
w/p condition)

PRESENTATION OF GOVERNMENT GRANT

Government Grant
Government Grant
related to ASSET
related to INCOME
presented in financial
presented in income
position as
statement as
Deferred Grant Income
Other income
Reduction in CA of asset
Reduction from related expense

REPAYMENT OF GOVERNMENT GRANT

Government Grant
Government Grant

1.
2.
3.
1.
2.
3.

related to ASSET
Increase the carrying
amount of the asset.
Immediately
recognized cumulative
additional depreciation
that would have been
recognize in absence of
grant.

related to INCOME
Close unamortized
deferred grant income
& recognized loss on
repayment of grant
(previously recorded as
grant income)

GRANT OF FREE INTEREST LOAN

Government Grant = Discount on note payable = FV PV
Government Grant is recognized same as the amortization over the
term of the loan

DISCLOSURE ABOUT GOVERNMENT GRANT

Accounting policy
Nature and extent of government grant
Unfulfilled condition and other contingencies
Not required to disclose:
Name of government agency
Date of government grant sanction
Date of receipt of cash

BORROWING COST interest and other costs that an entity incurs in

connection with borrowing of funds
Specifically include:
a. Interest expense
- using effective interest method
b. Finance charge
- finance lease
c. Exchange difference - foreign currency borrowing

Qualifying asset takes substantial period of time to get ready for

intended use or sale
Manufacturing plant
Intangible asset
Power generation facility
Investment property

Excluded from capitalization of Borrowing cost

1. Asset measured at FV (Bio assets)
2. Inventories manufactured at repetitive basis, even they take substantial time to
produce
3. Assets ready for intended use or sale when acquired

ACCOUNTING FOR BORROWING COST

Borrowing cost is required or mandatory to capitalized as cost of asset

Borrowing is directly attributable to acquisition, construction or production of

qualifying asset

All other borrowing cost shall be expensed when incurred.

Not directly attributable expensed immediately

1. SPECIFIC BORROWING COST borrowed specifically for qualifying asset

Capitalizable SBC = Actual BC incurred any investment income

2. GENERAL BORROWING COST

Actual GBC incurred (investment income not deducted in GBC)

Lowe

Capitalizable GBC = Average expenditure* x Average interest

r
rate*

* depending on months outstanding

3. SPECIFIC AND GENERAL BORROWING COST

Capitalizable SBC = Actual BC incurred any investment

income

Capitalizable GBC* = Average expenditure Specific loan x Average interest

rate

Total Capitalizable Borrowing Cost

*Must not exceed Actual GBC incurred

4. SPECIFIC BORROWING USED FOR GENERAL PURPOSES treated as General Borrowing

cost

Capitalizable BC = Specific borrowing cost 2 (incurred evenly)

x interest rate
ALL not capitalized interest are interest expense.

COMMENCEMENT OF CAPITALIZATION
1. Entity incurs expenditures for the asset
2. Entity incurs borrowing cost
3. Entity undertake necessary activities to prepare asset for intended use or sale
SUSPENSION OF CAPITALIZATION

During extended period in which active development is

interrupted

*Not suspended when substantial technical and

administrative work is being carried out

*Not suspended is temporary delay (necessary part of

process)
CESSATION OF CAPITALIZATION

Substantially(not all) all activities necessary to prepare that part

for intended use or sale is COMPLETED

DISCLOSURE related to BC

1. Borrowing cost capitalized during the period

2. Capitalization rate used
REVALUATION
INITIAL MEASUREMENT Cost

SUBSEQUENT MEASUREMENT (choose either)

Cost model

Revaluation model

Cost

FV @revaluation date
(any Accumulated Depreciation)
(subsequent
Accumulated Depreciation)
(any Impairment Loss)_______
(subsequent
Impairment Loss)_______)
Carrying Amount
Revalued Amount

Applies to entire class (similar nature and use) of PPE

Frequency of revaluation depend upon changes in FV

Significant changes
annual revaluation

Insignificant changes 3 to 5 yrs may be sufficient

BASIS OF REVALUATION
Cost

(New
resid
ual
value
*)
(Accu
mulat
ed
Depre
ciatio
n,
cost)
Carryi
ng
Amou
nt

Replac
ement
cost
(New
residua
l value)

(Accum
ulated
Deprec
iation,
R.cost)

Sound
Value
or FAIR
VALUE

Appreciati
on

Accumula
ted
Depreciati
on
Appreciatio
n

Revaluati
on
Surplus

RECORDING VALUATION
Proportional Approach
Machinery
(Appreciation)

Accumulated
Depreciation(Appreciation)
Revaluation Surplus

Elimination Approach
Accumulated
Depreciation, cost
Machinery (elimination of AD)

Machinery
Revaluation Surplus

REVALUATION SURPLUS component of OCI

Credited to Retained Earnings when surplus is realized over
useful life of asset

REVERSAL
Reversal of Revaluation
increase
PPE
Revaluation surplus

Revaluation surplus (up

to remaing RS)
Revaluation loss or
impairment loss(amount
below cost)
PPE

Reversal of
Revaluation decrease
Revaluation Loss

PPE

PPE

Revaluation gain (up to recognized

RL only)
Revaluation surplus (amount above
cost)

SALE OF REVALUED ASSETS

To record sale

Cash
AD

Loss on sale (if any)

To record realization of
RS
Revaluation Surplus

Retained Earnings

PPE

Gain on sale(if any)

DISCLOSURE related to REVALUATION

HIGHE

IMPAIRMENT ASSESSMENT
Asset with definite useful life = when there is indication only
Intangible asset with indefinite useful life = annually assessed
for impairment
Sources of impairment
EXTERNAL
Significant decrease in
FV of asset
FV < CA
Significant change
market (customer
taste)
Increase in interest rate
on investment

INTERNAL
Obsolescence or
physical damage
Asset is used in
adverse effect on entity
(idle asset)
Economic performance
of asset is worse than
expected

RECOVERABLE AMOUNT
FV less cost of disposal (SP less cost of disposal)
PV of future cash flow (value in use)

*Cost of disposal excludes finance cost and income tax expense

*Cost of disposal includes legal cost, cost of removing asset and
direct cost bringing asset for sale
IMPAIRMENT LOSS

COST
REVALUED ASSET
Impairment Loss
Accumulated Depreciation
Accumulated Depreciation
Revaluation surplus
(remaining RS)

Impairment Loss (excess of

RS recognized in P/L)

Machinery
IMPAIRMENT REVERSAL

COST
REVALUED ASSET
Accumulated
Machinery
Depreciation
Gain on reversal of impairment
Accumulated Depreciation

Gain on reversal of impairment (IL

previously recognized)

Revaluation surplus (excess of reversal to

IL)
Reversal Of Impairment Loss (there has been change in estimate of
recoverable amount)
The increase in CA due to reversal shall not exceed the CA had no
impairment loss recognized
Goodwill - no reversal of impairment

IMPAIRMENT = Recoverable amount < Carrying amount

CASH GENERATING UNIT Impairment loss allocated in the following

order
1. Goodwill (if any)
2. NONCASH ASSET (Pro-rata based on their Carrying Amount)

*Cash and Receivables is included in Carrying amount of CGU but not credited
for impairment loss

*NCA cannot be impaired lower than FV less cost to sell or PV indicated

*If depreciable asset, impairment loss credited to Accumulated depreciation

Corporate assets group or divisional asset like head office, equipment

or research center

*Pro-rata to CGU which corporate asset is belong or used.

WASTING ASSETS produced by nature. (Natural resources like coal,

ore, oil, gold silver, timber)
Wasting assets are so called because physically consumed and are
irreplaceable.

1. Acquisition cost price paid to obtain property

Total Acquisition Cost

(Residual Value)
___
land value after extraction of natural
resource

Depletable amount

2. Exploration cost expenditure after obtaining legal right to explore but before
technical feasibility

Cost to attempt locate natural resources that can economically

extracted or exploited
Successful effort method capitalize only directly related to discovery of
commercial resource

Successful capitalized
Unsuccessful expense

Used by most large and successful oil entities

Full cost method all exploration cost(whether successful or not) are
capitalized.

Used by small oil entities

3. Development cost cost of exploiting and extracting successfully located natural

resources

Tangible equipment not capitalized as cost of natural resource

Separate account and depreciated

Intangible equipment capitalized cost of natural resource

(drilling, sinking mine, construction of wells)

4. Restoration cost of brining property to its original condition

Capitalized only when entity incurs the obligation (must be existing

present obligation)

*Added to cost of resources or deducted to residual value

DEPLETION METHOD (output method)

_Depletable
amount_
Depletion rate/unit
x
units extracted
=
Depletion

Units to be extracted

Revision in estimate is applied prospectively

_RemainingNew
depletable
amount_
depletion

Revised estimate
of
output
rate/unit

*Depletion is part of production or cost of sales in income statement

DEPRECIATION OF TANGIBLE EQUIPMENT

Useful life of equipment

=
Straight line
SHORTE
method
R

Useful life of wasting asset =

Output method

If output method is shorter

Shutdown

Year of shutdown, change to Straight line method (remaining useful life of

equipment).
Operation resume

Use output method again, Remaining depletable amount / remaining or

revised estimate of output.

TRUST FUND DOCTRINE

WASTING ASSET
DOCTRINE

Dividends limited only to balance of RE

Retained
Earnings

Do not pay dividend if deficit

+ Accumulated
Depletion

- Capital liquidated in
prior years

- Unrealized Delpetion in
ending inventory

Maximum dividend