A CCOUNTING FOR P ROPERTY , P LANT AND E QUIPMENT

Total cost:
Property, Plant and Equipment – are tangible assets that are: Invoice price 45,000
1. purchased, constructed, developed or otherwise acquired; Delivery cost 3,000
2. held for use in the production or supply of goods or services or to Installation cost 1,500
produce program outputs; Test run cost 1,000
3. for rental to others; Total 50,500
4. for administrative purposes; Less: Withholding Tax 3,140
5. expected to be used during more than one reporting period; and Net Amount Paid 37,460
6. not intended for resale in the ordinary course of operations.

Criteria for Recognition:

a. it is probable that the future economic benefits or service potential
associated with the item will flow to the entity;
b. the cost or fair value of the item can be measured reliably;
c. beneficial ownership and control clearly rest with the government;
d. the asset is used to achieve government objectives; and
e. it meets the capitalization threshold of P15,000.
 When an asset is acquired on account subject to a cash discount, the
Measurement at Recognition cost of the asset is equal to the purchase price, including import duties
 PPE that qualifies for recognition as an asset shall be measured at and non-refundable purchase taxes, after deducting trade discounts
cost. and rebates.
 Where the PPE is acquired through a non-exchange transaction, its
cost shall be measured at its fair value as at the date of acquisition. Example 2: An entity purchased a threshing machine on account at
 The cost of an item of PPE comprises: P200,000, with credit terms of 2/10, n/30.
a. Purchase price, including import duties and non-refundable
purchase taxes, after deducting trade discounts and rebates;
b. Any costs directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating in the
manner intended by management.
- Costs of employee benefits arising directly from the
construction or acquisition of the item of PPE
- Costs of site preparation
- Initial delivery and handling costs
- Installation and assembly costs
- Costs of testing whether the asset is functioning properly, after
deducting the net proceeds from selling any items produced
while bringing the asset to that location and condition (such as
samples produced when testing equipment)
- Professional fees.
c. The initial estimate of the costs of dismantling and removing the item
and restoring the site on which it is located, the obligation for which an
entity incurs either when the item is acquired, or as a consequence of
having used the item during a particular period for purposes other than  If promotional items are received upon purchase of the PPE, the
to produce inventories during that period. allocation of cost for the promo items received shall be as follows:
 The following are examples of costs that are expensed rather than a. If the promotional item received is the same as the PPE
recognized as elements of cost of a PPE: purchased, the total purchase cost shall be allocated to the total
- Costs of opening a new facility quantity purchased plus the promotional item.
- Costs of introducing a new product or service (including b. If the promotional item received is different from the PPE
costs of advertising and promotional activities) purchased, the cost of the promo item shall be its fair value. It
- Costs of conducting business in a new location or with a shall be deducted from the total cost of the items purchased and
new class of customers (including costs of staff training) the balance shall be allocated to the total quantity purchased.
- Administration and other general overhead costs
 The different modes of acquiring PPE includes purchase, construction, Example 3: An entity purchased a motor vehicle at P330,000. A window-type
exchange transaction, non-exchange transaction, transfer and finance air-conditioning unit with fair value of P20,000 was received as promotional
lease. item.
 Tangible items below the capitalization threshold of P15,000 shall be
accounted as semi-expendable property, and shall be recognized as
expenses upon issuance to end-user.

Illustrative Accounting Entries

Purchase of PPE - PPE acquired through purchase are charged against

appropriations/ allotments or special budget for capital outlay. PPE can be
purchased on cash basis, on account, on installment basis, with promotional
items, and at a lump sum price.

Example 1: An entity purchased a photocopying machine with the following

costs:

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 In case the acquisition of PPE is at a “lump sum price”, the cost shall
be apportioned to the asset acquired in order to have proper basis for
computing depreciation. The purchase cost shall be distributed based
on the relative fair value of the assets acquired.

 The cost of several PPE purchased at lump sum price per set/group/lot
shall be allocated to each PPE based on the breakdown of cost
reflected in the invoice, if any. In the absence of such breakdown, the
allocation of cost shall be based on the relative fair value of the assets
acquired.

Example 4: An entity purchased a computer set with printer, table and chair
at a lump sum price of P55,000. The invoice reflected the following cost
component:

Construction of PPE
- During the construction period, all expenses incurred in relation to the
construction of the PPE shall be taken up in the books as Construction
in Progress (CIP) with the appropriate asset classification.
- As soon as the construction is completed, the “Construction in
Progress” account shall be reclassified to the proper asset account.
Likewise, all expenses such as interests, license fees, etc., during the
construction period shall be capitalized.
- If the project is to be constructed by administration, the procurement of
labor and materials shall be in compliance with the provisions of R.A.
No. 9184 and its Revised Implementing Rules and Regulations.

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 Since the condition (construction of school building) was fulfilled, the following
adjustment shall be made:

Intra-agency Transfers of PPE - These shall be recognized at the carrying

amount of the asset received. The receiving department/office shall
recognize the asset at its original historical cost less accumulated
depreciation and accumulated impairment loss.

a. PPE purchased and transferred in the same year

Example: Entity A-Central Office transferred on December 15, 2014 to Regional Office
(RO) No. I a Lexmark Printer purchased on January 12, 2014 with an acquisition cost
of P40,000 and accumulated depreciation of P7,600.

Donation of PPE
 Cost of PPE acquired through donation without condition shall be taken
up at its fair value at the date it is acquired. All expenses incurred in
connection with the donated asset, such as delivery and installation
costs, shall be included in the

Example: A bus was donated to Entity A with a fair value of P1,000,000. Duties and
taxes paid were P10,000; thus, the total cost amounted to P1,010,000. The donation
received shall be recognized as follows:

b. PPE purchased in Prior Year (PY) and transferred in Current Year (CY)

Example: On December 15, 2014, the Entity A-Central Office transferred to Entity ARO
No. I a Lexmark Printer purchased on December 20, 2013 with acquisition cost of
P40,000, estimated useful life of five years, residual value of five percent (5%), and
accumulated depreciation of P7,600.

 Where a PPE is acquired through donation with conditions or

restrictions, a liability account shall be recognized until the conditions or
restrictions have been fulfilled.

Example: A land was donated to Entity A with a condition that a school building will be
constructed to operate as an elementary school for 20 years. The land has a fair value
of P950,000 at the time of donation. The building has a residual value of 5% and an
estimate useful life of 20 years. Building was available for use on June 1, 2014.

Assume that the school building constructed by administration costing P600,000 has
been inspected and accepted by Entity A. (Note: Assume that the transactions on the
construction of the building were already recognized.)

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Inter-agency transfer of PPE – Transfer from one government entity to
another shall be recognized by the recipient entity at net carrying value. The
transferor shall derecognize the PPE account upon transfer.
Example: Entity A transferred to Entity B a computer purchased last year with
acquisition cost of P40,000 and accumulated depreciation of P7,600.
Grants - Grants are assistance in the form of transfer of resources, in cash
or in kind, to an agency/entity from other levels of government, private
sectors or international institutions with or without conditions relating to the
operating activities of the agency/entity.
- They shall be measured at fair value as at the date of acquisition,
and shall be recognized when there is reasonable assurance that:
(a) the entity will comply with the conditions attached, and (b) the
grants will be received.
- The grant qualifies as a trust receipt and the agreement stipulates
that any PPE acquired shall be donated to the recipient entity
upon completion of the projects.
Illustrative Entries:
Infrastructure Assets
Besides the five criteria for recognizing PPE, infrastructure assets have the
following additional characteristics:
a. Part of a system or network;
b. Specialized in nature and do not have alternative uses;
c. Immovable; and
d. May be subject to constraints on disposal.
In accordance with PPSAS 17, public infrastructures shall be recognized as
PPE in the entity’s financial statements. These shall be recorded in the
books of accounts as Infrastructure Assets such as road networks, sewer
system, water and power supply systems, communication networks, etc.
Reforestation Projects
With the implementation of PPSAS, reforestation projects are recognized as
Land Improvements, Reforestation Projects in the books of accounts of the
DENR or other entity concerned.
 The following constitutes the initial costs of Land Improvements-
Reforestation Projects:
a. Survey, Mapping and Planning (SMP)
b. Nursery Operation and Seedling Production or Procurement
c. Plantation Establishment (Site preparation, hauling of seedlings
and planting)
 Only directly attributable cost shall be recognized as part of the initial
cost of the project constituting the Construction in Progress-Land
Improvements
 Subsequent expenditures such as costs for the maintenance and
protection incurred within the duration of the reforestation project, i.e.,
construction of fire lines, strip brushing, replanting, providing pest
control, patrolling, shall be capitalized.
 Costs for the maintenance and protection incurred after the duration or
turn-over of the reforestation project shall be charged to Repairs and
Maintenance-Land Improvements.
 The cost of replacing trees shall be expensed where small numbers of
trees are being replaced in any one particular area.
Repairs and Maintenance
- Minor repairs shall be directly charged to expense account “Repairs
and Maintenance” of the specific PPE.
- Major repairs shall be added to the carrying amount of the PPE and
shall be depreciated over the remaining life of the PPE.
- Where cost cannot easily be differentiated between a minor or major
repair, it shall be treated as expense.
Derecognition of PPE
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