PROPERTY PLANT AND

EQUIPMENT
OUTLINE
I. Definition
II. Recognition of Property
III. Measurement at recognition
IV. Measurement after recognition
Definition
Tangible assets that are held for
use in production or supply of
goods or services, for rental to
others, or for administrative
purposes, and are expected to be
used for more than one year.
Examples of PPE
Land
Building
Machinery
Ship
Aircraft
Motor vehicle
Furniture and fixtures
Office equipment
Patterns, molds and dies
Leasehold improvements and book plates
Recognition of PPE
It is probable that future economic
benefits associated with the asset
will flow to the entity.
The cost of the asset can be
measured reliably.
Spare parts and servicing equipment
Most spare parts
carried as inventory and recognized as
expense
Major spare parts and stand-by equipment
qualify as PPE when use for more than
one year
Spare parts and servicing equipment that
can be used only in connection with an
item of PPE are accounted for as PPE
Measurement
Measurement at recognition
At COST

Measurement after recognition

Cost model cost less any accumulated
depreciation and any accumulated
impairment loss
Revaluation model revalued amount,
fair value at the date of revaluation less
any subsequent accumulated and
subsequent accumulated impairment
loss.
Recording Acquisitions
of Property
1. Acquisition by Purchase
a. Cash Purchase
b. Acquisition on Account Subject to
Cash Discount
c. Acquisition on Installment Basis
2. Non-cash Acquisition
a. Issuance of Share Capital
b. Issuance of bonds payable
c. Donation
Recording Acquisitions
of Property
2. Non-cash Acquisition
d. Acquisition by Exchange
e. Trade in
f. Self-Constructed Asset
Acquisition by Purchase
a. Cash Purchase
- Individual
cash price equivalent / cash paid at the
recognition date plus directly
attributable costs such as freight,
installation cost and other costs
necessary in bringing the asset to the
location and condition for its intended
use.
Acquisition by Purchase
a. Cash Purchase
- Individual

Problem 22-7 # 1
Machinery 500T
Cash 500T
Acquisition by Purchase
a. Cash Purchase
Lump Sum Purchase
Allocation is done on the basis of
relative fair value of the assets
acquired.
Problem 22-7 # 2
Land(5,500T x 2/5) 2,200T
Building (5,500T x 3/5) 3,300T
Cash 5,500T
Acquisition by Purchase
b. Acquisition on Account Subject to
Cash Discount
invoice price minus the discount,
regardless of whether the discount is
taken or not .

Problem 22-6
A. Payment was made within the
discount period
Gross Method:
Machinery 500T
A/P 500T

A/P 500T
Cash 490T
Machinery 10T
A. Payment was made within the
discount period
Net method:
Machinery 490T
A/P 490T

A/P 490T
Cash 490T
A. Payment was made beyond the
discount period
Gross Method:
Machinery 500T
A/P 500T

A/P 500T
Purchase discount lost 10T
Cash 500T
Machinery 10T
A. Payment was made beyond the
discount period
Net method:
Machinery 490T
A/P 490T

A/P 490T
Purchase discount lost 10T
Cash 500T
Acquisition by Purchase
c. Acquisition on Installment Basis
Cost is at cash price equivalent
If cash price is not available, the asset is
recorded at an amount equal to present
value of all payments using an implied
interest rate.
The excess of the installment price over the
cash price is treated as an interest to be
amortized over the credit period
c. Acquisition on Installment Basis
Case 1 Cash price is given.
Problem 22-8
Jan. 1, 2013
Equipment 580T
Discount on NP 120T
Cash 200T
Note payable 500T
c. Acquisition on Installment Basis
Case 1 Cash price is given.
Schedule of Amortization:
Year NP Fraction Amort.
2013 500T 5/15 40T
2014 400T 4/15 32T
2015 300T 3/15 24T
2016 200T 2/15 16T
2017 100T 1/15 8T
1,500T 120T
c. Acquisition on Installment Basis
Case 1 Cash price is given.
Dec. 31, 2013
Note payable 100T
Cash 100T

Interest expense 40T

Discount on NP 40T
c. Acquisition on Installment Basis
Case 1 Cash price is given.
Dec. 31, 2014
Note payable 100T
Cash 100T

Interest expense 32T

Discount on NP 32T
c. Acquisition on Installment Basis
Case 2 Cash price is not available.
Problem 22-9

Downpayment 100T
Present value of the note
( 200T x 3.17) 634T
Total cost 734T
c. Acquisition on Installment Basis
Case 2 Cash price is not available.
Jan. 1, 2013
Machinery 734T
Discount on NP 166T
Cash 100T
Note payable 800T

Schedule of Amortization
c. Acquisition on Installment Basis
Case 2 Cash price is not available.
Dec. 31, 2013
Note payable 200T
Cash 200T

Interest expense 63,400

Discount on NP 63,400
Non-cash Acquisition
a.) Issuance of Share Capital
Order of priority:
(a) fair value of the asset received,
(b) fair value of the securities issued
and
(c) par or stated value of the
securities issued
Problem 22-7 # 5
Land 2,000T
Building 5,500T
Share Capital
(60T x P100) 6,000T
Share Premium 1,500T
Problem 22-12 # 1
Fair value of the securities
(50T x 120) 6,000T
Cash paid 1,000T
Total cost 7,000T

Building 7,000T
Cash 1,000T
Share Capital 5,000T
Share Premium 1,000T
Non-cash Acquisition
b.) Issuance of bonds payable
c/o Financial Accounting Part 2
The asset acquired is measured in
the following order:
a.) Fair value of bonds payable
b.) Fair value of asset received
c.) Face value of bonds payable
Non-cash Acquisition
c.) Donation
Recorded at fair value of the asset
received
(i) Donated by a Stockholder
Donated capital is credited.
Expenses incurred in connection with
the donated asset should be charged to
the donated capital account. (ex.
registration fees and legal fees)
Non-cash Acquisition
c.) Donation
(i) Donated by a Shareholder
Directly attributable costs incurred
such as installation and testing cost
necessary to bring the donated asset to
the location and condition for its
intended use shall be capitalized
Problem 22-7 # 4
Equipment 1,000T
Donated Capital 1,000T

Donated Capital 25T

Cash 25T
Non-cash Acquisition
c.) Donation
(ii.) Donated by a nonshareholder
Recorded at their fair value when they
receive or receivable
Credit to liability account if it is with
restrictions
If without restrictions, credit income
account.
Problem 22-12 # 2
Land 1,500T
Income from donation 1,500T
Non-cash Acquisition
c.) Donation
(iii.) Donated by the government
-c/o chapter 23
Non-cash Acquisition
d.) Acquisition by Exchange
Has commercial substance
the cost of the asset is measured at
the fair value of the asset received,
which is equivalent to the fair value
of the asset given up adjusted by the
amount of any cash or cash
equivalents transferred( plus cash
paid or less cash received).
Commercial substance
The transaction has commercial
substance when the expected cash
flows after the exchange differ
from the expected cash flows
before the exchange.
FV of AR = FV of AGU + cash paid

FV of AR = FV of AGU cash
received

The difference between the FV and

the CV of asset given up is gain or
loss on exchange.
Problem 22-13 # 3
Equipment new 2,000T
AD 700T
Equipment old 2,000T
Cash 500T
Gain on exchange 200T
Non-cash Acquisition
d.) Acquisition by Exchange
Has commercial substance
If no cash is involved, cost is
measured at:
(1) fair value of property given
(2) fair value of property received
(3) carrying value of property given
Problem 22-16
Smile Company

Equipment new 500T

AD 2,000T
Equipment old 2,400T
Gain on exchange 100T
Problem 22-16
Frown Company

Equipment new 500T

AD 1,750T
Equipment old 2,200T
Gain on exchange 50T
Problem 22-13 # 1
Land 1,500T
AD 700T
Equipment old 2,000T
Gain on exchange 200T
Problem 22-15, # 3
Equipment new 1,000T
AD 1,800T
Loss on exchange 200T
Equipment old 3,000T
Non-cash Acquisition
d.) Exchange
ii. Has no commercial substance
cost is measured at the carrying
amount of the asset given up.
Accordingly, no gain or loss on
exchange is recognized.
if cash is involved, asset is recorded
at the carrying amount of the asset
given up plus cash paid or less cash
received.
Problem 22-13 # 2
Equipment new 1,300T
AD 700T
Equipment old 2,000T
Non-cash Acquisition
e. Trade in (recorded in the order of
priority)
recorded at fair value of asset given
plus cash payment.
trade in value of asset given plus cash
payment (in effect, this is the fair value
of the asset received).
Problem 22-17
Equipment new 1,400T
AD 600T
Equipment old 1,000T
Cash 980T
Gain on exchange 20T
Problem 22-18
DE new 2,300T
AD 1,300T
Loss one exchange 150T
Input tax 300T
Insurance 120T
Taxes and Licenses 10T
DE old 1,500T
Cash 2,680T
Other problems
22-7, #3
22-10
22-11
22-12, #3, #4
22-14
22-15, #1 and #2
Problem 22-11
Dec. 31, 2013
Machinery (200T x 5.712) 1,142,400
Discount on NP 457,600
Note payable 1,600,000

Note payable 200,000

Cash 200,000
Schedule of Amortization:
Date Payment Interest Principal PV
12/31/13 1,142,400
12/31/13 200,000 - 200,000 942,400
12/31/14 200,000 103,664 96,336 846,064
12/31/15 200,000 93,067

Entries
12/31/14 NP 200T IE 103,664
cash 200T D on NP 103,664

12/31/15 NP 200T IE 93,067

Cash 200T D on NP 93,067
Problem 22-12
3.) Machinery (800T x.95) 760T
Cash 760T

4.) Equipment 200T

Note payable 200T
Problem 22-14
1.) Land (1/4 x 6M) 1,500T
Bldg (3/4 x 6M) 4,500T
Machinery (8/12 x 1,800T) 1,200T
Ofc Equip (4/12 x 1,800T) 600T
Delivery Equip 500T
Cash 8,300T
Problem 22-14
2.) Land 1,000T
Bldg 5,000T
Machinery 2,000T
Share Capital 6,000T
Share Premium 2,000T

3.) Land 500T

Donated Capital 500T
Problem 22-14
4.) Machinery 882T
Cash 882T
Machinery 35T
Cash 35T
5.) F&F (400T x .797) 318,800
Discount on NP 81,200
Note payable 400,000
Problem 22-15
1.) Computer 430T
Inventory 300T
Cash 50T
Gain on exchange 80T
2.) Machinery-new 140T
AD 120T
Loss on exchange 10T
Machinery old 240T
Cash 30T
Government Grants
Grants in recognition of specific
expenses should be recognized as
income over the period of the
related expense.
Problem 23-5 # 1
Cash 30M
Deferred Income GG 30M

Environmental exp 2M
Cash 2M

Deferred income GG 3M
Income from GG 3M
(2/20 x 30M)
Government Grants
Grants related to depreciable
assets should be recognized as
income over the periods and in
proportion to the depreciation of
the related assets.
Problem 23-5 # 2
Cash 40M
DI GG 40M
Bldg 50M
Cash 50M
Depreciation 2.5M
AD (50/20) 2.5M
DI-GG 2M
Income from GG 2M
(40/20)
Government Grants
Grants related to nondepreciable
assets requiring fulfillment of
certain conditions should be
recognized as income over the
periods which bear the cost of
meeting the conditions.
Problem 23-5 # 3
Land 50M
DI-GG 50M
Building 80M
Cash 80M
Depreciation 3.2M
AD (80/25) 3.2M
DI-GG 2M
Income from GG(50/25) 2M
Government Grants
Grants that become receivable as
compensation for expenses or
losses already incurred or for the
purpose of giving immediate
financial support to the enterprise
with no further related costs
should be recognized as income
of the period in which it becomes
receivable.
Problem 23-5 # 4
Cash 10M
Income from GG 10M
Problem 23-6
Land 12M
DI- GG 12M
Land improvements 2M
Cash 2M
DI-GG 2.4M
Income from GG 2.4M
(12x 2/10)
Problem 23-7
Cash 12M
DI GG 12M
Bldg 9M
Cash 9M
Depreciation 900T
AD 900T
Tuition exp 600T
Cash 600T
Problem 23-7
DI-GG 1,650T
Income from GG 1,650T

Bldg(9M/10) 900T
Tuition (3M/4) 750T
Total 1,650T
Presentation of Government Grants
1. Related to assets
a.) By setting the grant as deferred
income
b.) By deducting the grant in arriving at
the carrying amount of the assets
Problem 23-8
1.) Deferred Income
Machinery 7M
Cash 7M
Cash 1M
DI-GG 1M
Depreciation 1,300T
AD 1,300T
DI-GG 200T
Income from GG 200T
Problem 23-8
2.)Deduction from the cost of the asset
Machinery 7M
Cash 7M
Cash 1M
Machinery 1M
Depreciation 1,100T
AD 1,100T
Repayment of Government Grants
A government grant that becomes
repayable shall be accounted for as
a change in accounting estimate.
Repayment of grant related to
income shall be applied first
against any unamortized deferred
income and any excess shall be
recognized immediately as an
expense.
Repayment of Government Grants
Repayment of a grant related to an
asset shall be recorded by
increasing the carrying amount of
the asset.
The cumulative additional
depreciation that would have been
recognized to date I the absence of
the grant shall be recognized
immediately as an expense.
Repayment of Government Grants
Refer to Illustration on page 988 to
1016
Ans. 23-11
Grant of interest-freeloan
Refer to illustrative problem pg 1019
Answer 23-10