PAGE 1

FINANCIAL ACCOUNTING AND REPORTING

INITIAL MEASUREMENT OF PPE

I. Definitions

Cost 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 or, where applicable, the amount attributed to that asset when
initially recognized in accordance with the specific requirements of other PFRS.

Entity-specific value Present value of the cash flows an entity expects to arise from the continuing use
of an asset and from its disposal at the end of its useful life or expects to incur
when settling a liability.

Property, plant and equipment are tangible items that:

(a) Are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
(b) Are expected to be used during more than one period.

Recognition
Items of property, plant, and equipment should be recognized as assets when it is probable that:
 The future economic benefits associated with the asset will flow to the enterprise; and
 The cost of the asset can be measured reliably.
Measurement at Recognition - An item of property, plant and equipment that qualifies for recognition, as
an asset shall be measured at its cost.
Elements of Cost
The cost of an item of property, plant and equipment comprises:
(a) Its 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.
(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 to produce
inventories during that period.
Examples of directly attributable costs are:
(a) Costs of employee benefits arising directly from the construction or acquisition of the item of
property, plant and equipment
(b) Costs of site preparation
(c) Initial delivery and handling costs
(d) Installation and assembly costs
(e) 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)
(f) Professional fees
Examples of costs that are not costs of an item of property, plant and equipment and should be expensed:
(a) Costs of opening a new facility
(b) Costs of introducing a new product or service (including costs of advertising and promotional
activities)
(c) Costs of conducting business in a new location or with a new class of customer (including costs of
staff training)
(d) Administration and other general overhead costs.

10/16
 PAGE 2

Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the
item is in the location and condition necessary for it to be capable of operating in the manner intended
by management. Therefore, costs incurred in using or redeploying an item are not included in the carrying
amount of that item. For example, the following costs are not included in the carrying amount of an item of
property, plant and equipment:

(a) Costs 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
(b) Initial operating losses, such as those incurred while demand for the item’s output builds up
(c) Costs of relocating or reorganizing part or all of an entity’s operations.

Measurement of Cost
Measurements with an order of priority to be followed:

Issuance of Shares Issuance of Bonds Exchange Transaction with

difference in Cash Flows
st
1 FV of Asset FV of Bonds FV of Asset Given
2nd FV of Shares FV of Asset FV of Asset Received
3rd Par value of Shares Face value of BP BV of Asset Given

Assets acquired by an exchange transaction shall be adjusted for the amount of cash paid or
received.

Measurements that use the cash price or its equivalent

Acquired though short term credit - Cost should be net of the discount regardless whether taken
or not.
Acquired through long term financing - Present value of the deferred payment or the installments

Measurements at fair value of the asset received only

Asset donated by a shareholder -
Asset from a government grant -
Recorded at the fair value of the asset. An equity account
“Donated Capital” shall be credited which is part of share
premium. However, cost incurred to transfer the title paid by
the recipient shall not be capitalized, instead debited from
Donated Capital.
Also recorded at fair value. Income shall be credited if there
are no conditions attached and cost incurred to transfer the
title shall be recognized as an expense.

Other measurement considerations

Self Constructed asset -
Exchange transactions that lacks
commercial substance -
Includes the cost of materials, direct labor and overhead
specifically attributable to the construction. Savings from the
construction, meaning lower total cost compared if the assets
was purchased are not included in the cost and shall not be
recognized as income.
This term “lacks commercial substance” applies if an both
assets from the exchange represents a configuration (RISK,
TIMING AND AMOUNT) of cash flows that does not differ
from each other. Therefore the transaction shall be accounted
for in a manner that no exchange occurred and shall be
measured at book value of the asset given with NO “gain or
loss” to be recognized.

10/16
 PAGE 3

GOVERNMENT GRANTS AND GOVERNMENT ASSISTANCE

Definitions

Government assistance Action by government designed to provide an economic benefit specific to an

entity or range of entities qualifying under certain criteria. Government
assistance for the purpose of this Standard does not include benefits provided
only indirectly through action affecting general trading conditions, such as the
provision of infrastructure in development areas or the imposition of trading
constraints on competitors.

Government grants Assistance by government in the form of transfers of resources to an entity in

return for past or future compliance with certain conditions relating to the
operating activities of the entity. They exclude those forms of government
assistance which cannot reasonably have a value placed upon them and
transactions with government which cannot be distinguished from the normal
trading transactions of the entity.

Grants related to assets Government grants whose primary condition is that an entity qualifying for
them should purchase, construct or otherwise acquire long-term assets.
Subsidiary conditions may also be attached restricting the type or location of
the assets or the periods during which they are to be acquired or held.

Grants related to income Government grants OTHER than those related to assets.

Government Grants, including non-monetary grants at fair value, shall not be recognized until there is
reasonable assurance that:
(a) The entity will comply with the conditions attaching to them; and
(b) The grants will be received.

There are four types of significant government grants that will require the following treatment:

1. Grants for the purpose of specific expenses – This should be deferred and recognized as income
in the same period as the relevant expense.

2. Grants related to depreciable assets are usually recognized as income over the periods and in the
proportions in which depreciation on those assets is charged. Either by deducting the grant from the
cost of the asset or as deferred income.

3. Grants related to non-depreciable assets may also require the fulfillment of certain obligations and
would then be recognized as income over the periods which bear the cost of meeting the
obligations. As an example, a grant of land may be conditional upon the erection of a building on
the site and it may be appropriate to recognize it as income over the life of the building.

4. A government grant that becomes receivable as compensation for expenses or losses already
incurred or for the purpose of giving immediate financial support to the entity with no future related
costs shall be recognized as income of the period in which it becomes receivable.

Presentation of Grants Related to Assets

a. Government grants related to assets, including non-monetary grants at fair value, shall be
presented in the statement of financial position either by setting up the grant as deferred
income or by deducting the grant in arriving at the carrying amount of the asset.

b. Two methods of presentation in financial statements of grants (or the appropriate portions of
grants) related to assets are regarded as acceptable alternatives.

c. One method sets up the grant as deferred income which is recognized as income on a systematic
and rational basis over the useful life of the asset.

10/16
 PAGE 4

d. The other method deducts the grant in arriving at the carrying amount of the asset. The grant is
recognized as income over the life of a depreciable asset by way of a reduced depreciation charge.

e. The purchase of assets and the receipt of related grants can cause major movements in the cash
flow of an entity. For this reason and in order to show the gross investment in assets, such
movements are often disclosed as separate items in the cash flow statement regardless of whether
or not the grant is deducted from the related asset for the purpose of balance sheet presentation.

Presentation of Grants Related to Income

a. Grants related to income are sometimes presented as a credit in the income statement, either
separately or under a general heading such as “Other income”; alternatively, they are deducted in
reporting the related expense.
b. Supporters of the first method claim that it is inappropriate to net income and expense items and
that separation of the grant from the expense facilitates comparison with other expenses not
affected by a grant. For the second method it is argued that the expenses might well not have
been incurred by the entity if the grant had not been available and presentation of the expense
without offsetting the grant may therefore be misleading.
c. Both methods are regarded as acceptable for the presentation of grants related to income.
Disclosure of the grant may be necessary for a proper understanding of the financial statements.
Disclosure of the effect of the grants on any item of income or expense, which is required to be
separately disclosed, is usually appropriate.

Repayment of Government Grant

a. If a grant becomes repayable, it should be treated as a change in estimate.
b. If the grant is recorded as a deferred income, the repayment should be applied first against any
related unamortized deferred income (the balance of the deferred income), and the difference shall
be recognized as expense.
c. Where the original grant related to an asset, the repayment should be treated as increasing the
carrying amount of the asset or reducing the deferred income balance.
d. The cumulative depreciation which would have been charged had the grant not been received
should be charged as depreciation expense.

- - END - -

10/16