Property, Plant and Equipment (Pas 16)

Download as docx, pdf, or txt
Download as docx, pdf, or txt
You are on page 1of 1

PROPERTY, PLANT AND EQUIPMENT (PAS 16) o If discount is not taken, charged to purchased

discount lost as other expense


Definition
 Tangible assets, meaning with physical substance.  Installment
 Used in business, meaning used in production or supply of o Cash price equivalent
goods and services, for rental purposes and for administrative o If no established cash price, present value of all
purpose. installment payments using the market rate of
 Used over a period of more than one year. interest.
o Excess of installment price over the cash price –
Major Spare Parts and Standby Equipment interest expense over the credit period
 Qualify as PPE when the entity expects to use them during
more than one period.  Share capital
 Depreciated over a time period not exceeding the useful life of o Fair value of the property received
the related asset. o Fair value of the share capital
o Par value or stated value of the share capital
Measurement of PPE
 Initial recognition – cost  Bonds Payable
 Subsequent recognition – either cost model or revaluation o Fair Value of the bonds payable
model for the entire class of PPE o Fair value of the asset received
 Cost Model o Face amount of bonds payable
o Cost less any accumulated depreciation and any
accumulated impairment loss.  Exchange
 Revaluation Model o With commercial substance
o Fair value at the date of revaluation; less any  Fair value of the asset given up plus
subsequent accumulated depreciation and cash payment – payor
subsequent accumulated impairment loss.  Fair value of asset given up minus
cash received – recipient
Cost of an item of PPE o Lacks commercial substance
 Purchase Price  Carrying amount of asset given up
 Import duties plus cash payment – payor
 Nonrefundable taxes, after deducting trade discounts and  Carrying amount of asset given up
rebates minus cash received – receipient
 Cost directly attributable to bringing the asset to the location  No gain or loss is recognized when
and condition necessary for it to be capable of operating in the the exchange lacks commercial
manner intended by management. substance.
o Cost of employee benefits arising directly from
the acquisition of property, plant and equipment.  Donation
o Cost of site preparation o Receive shareholders contribution – credit to
o Initial delivery and handling cost donated capital at fair value
o Installation and assembly cost o Expenses incurred – charged to donated capital.
o Professional fees o Directly attributable costs incurred necessary to
o Cost of testing whether the asset is functioning bring the aaset to the location and condition –
properly capitalized
 Initial estimate of the cost of dismantling and removing the o Received non shareholders contribution –
item and restoring the site on which it is located. There must credited to income
be a present obligation.
 Self-constructed Assets
Cost that are expensed outright o Direct cost of materials
 Cost of opening a new facility o Direct labor
 Cost of introducing a new product or service, including o Incremental overhead
advertising and promotion. o Abnormal waste – not included
 Cost of conducting business in a new location or with a new o Internal profit or savings – eliminated
class of customer, including cost of staff training.
 Administration and other general overhead cost.
 Cost incurred while an item capable of operating in the
manner intended by management has yet to be brought into
use or is operated at less than full capacity.
 Initial Operating loss
 Cost of relocating or reorganizing part or all of an entity’s
operations.

Acquisition Cost of PPE


 Cash Purchase
o Cash paid plus all directly attributable costs of
bringing the asset to the location and condition
for the intended use, such as freight, installation,
and testing cost.
o Lump sum – allocate to the individual assets based
on their relative fair value.

 Purchases on Account
o Invoice price minus the discounts regardless of
whether the discount is taken or not.

You might also like