Initial Measurement

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

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given
to acquire an asset at the time of its acquisition or construction.

Measurement of Cost

The cost of an item of PPE is the cash price equivalent at the recognition date. If payment is
deferred beyond normal credit terms, the difference between the cash price equivalent and the total
payment is recognized as interest over the period of credit.

Cash Price Equivalent is the amount that would have been paid if the equipment was purchased on
cash basis rather than on account. (The entity would have paid for the asset at an amount excluding
discount/interest)

Before PIC Q&A No. 2012-2 (US GAAP)

Old building demolished RIGHT AWAY:

 Total cost charged to Land including demolition costs

Old building USED INITIALLY before demolition:

 Total cost allocated to land and building pro rata based on fair values
 Demolition of old building accounted for as derecognition (i.e the difference between the proceeds and
carrying amount recognized as gain or loss)
 Demolition costs are included in computing gain or loss on derecognition

In accordance with PIC Q&A No 2012-2

 Total cost allocated to land and building pro rata based on fair values REGARDLESS of intention.
 Allocated cost or CA of old building generally recognized in profit or loss as loss on derecognition.
 EXCEPTION – old building demolished right away and the new building is inventory. (If new building is
inventory, cost of the old building demolished is part of the cost of the new building.)
 Demolition costs are preferably included in the cost of the NEW building. (Reason: Demolition cost is a
directly attributable cost of the new building)

NOTE:
If interpretation is not mentioned in the problem or the Fair Value of Land and Building is not mentioned, use the
old practice before the adaption of PIC Q&A No. 2012-2 (US GAAP).