Property, Plant and

Equipment
Property, Plant and Equipment (PAS 16)
• (a) are held for by an enterprise for use in the production or
supply of goods or services, for rentals to others or for
administrative purposes
• (b) are expected to be used during more than one period.
• Carrying Amount – amount at which asset is recognized after deducting accumulated
depreciation and impairment cosrs.
• Cost – amount paid and the fair value of other consideration given to acquire an asset at
the time of acquisition or construction
• Depreciable amount – cost r valuation of asset less its residual value
• Depreciation – systematic allocation of the depreciable amount of an asset over its
useful economic life
• Fair value – amount at which the asset can be exchanged between knowledgeable, willing
parties in an arm’s length transaction
• Residual Value – amount obtained from disposal of asset after deducting estimated costs.
• Useful life – period which the asset is expected to be available for use by the enterprise
• Impairment Loss – where the carrying amount exceeds the recoverable amount.
CLASSIFICATION:
Asset Description
Land Real property used in operations
Buildings Structures that include warehouses,
plant facilities, and office buildings
Equipment Broad term that includes machinery,
computers, and other office
equipment, vehicles, and F&F
Natural Resources Productive assets that are physically
consumed in operations such as
timber, mineral deposits and oil, gas
Land improvements Enhancements to property such as
parking lots, driveways, private roads
etc.
Bearer plants Living plants used in the production
of supply of agricultural produce for assets.
more than one period not sold as agri-
produce
Typical Acquisition Costs
Purchase price, attorney’s fees, title,
recording fees, commissions, etc
Purchase prices, attorney’s fees,
commissions, reconditioning
Purchase price(less discounts), taxes,
transportation, installation, testing,
trial runs, reconditioning
Acquisition, exploration, development
and restoration
Separately identifiable costs
Apply PAS 16, “self-constructed
Recognition
• (a) it is probable that future economic benefits associated with the item will
flow to the entity
• (b) the cost of the item can be measured reliably
Expenditures related to the acquisition and use of operational assets are either:

Capital Revenue
Expenditures Expenditures
• Capital Expenditures are expenditures expected to yield benefits beyond
the current accounting period. This kind of expenditures are capitalized,
debiting appropriate asset account.
• Revenue Expenditures are expected to yield benefits only in the current
accounting period. They are recorded in expense accounts and matched
against the revenue of the period.
Measurement at Initial Recognition
• Initially, PPE should be measured at cost which is the cash price equivalent.
 Components / Elements of Costs
• (a) its purchased 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 the
management
• (c.) 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.
Example of directly attributable costs
• A. cost 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 cost of an item
of PPE
• A. Costs of opening a new facility
• B. Cost 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
• D. Administration and other general overhead costs
Valuation of Specific PPE
• Equipment is a broad term that encompasses machinery used in
manufacturing, computers and other office equipment, vehicles, furniture
and fixtures. The cost of equipment includes the purchase price plus any
sales tax, transportation, installation, testing, trial runs and reconditioning
costs. Equipment includes special platforms, foundations and other required
installation costs.
• Land improvements are depreciable site enhancements that are not
permanent, including driveways, parking lots, private roads, fencing, and
landscaping. The cost of land improvement is not added to the land account
but rather is capitalized the land improvements account and depreciated over
periods benefited by their use.
• Leasehold improvements are improvements of assets under a lease
contracts. Depreciation expense under lease improvements is computed as
depreciable amount divided by the useful life or lease term, whichever is
shorter.
• Natural Resources that provide long-term benefits are reported as
property, plant and equipment. These include timber tracts, mineral deposits,
oil and gas deposits. They can be distinguished from other assets by the fact
that their benefits are derived from their physical consumption.
• Acquisition costs are the amounts paid to acquire the rights to explore for
undiscovered natural resources or to extract proven natural resources.
• Exploration costs are expenditures such as drilling a well or excavating a mine as well
as any other costs
• Development costs are incurred after the resource has been discovered but before
production has begun.
• Bearer plants these are biological assets that meet the criteria of bearer
plants will be subject to all of the recognition of PPE under PAS 16.
Recording Acquisitions of Property, Plant and
Equipment
• I. Acquisition by Purchase – Includes invoice price net of discounts, sales
taxes, freight, installation, break-in costs, and other expenditures incurred to
bring it to the condition and location intended for its use.
• II. Noncash acquisition – PPE using Equity shares (Fair value of the goods
or services received or FV of the equity instruments granted)
• III. Exchange of Assets
• IV. Self construction – Labor, materials and variable overhead excluding any
profit incurred, moreover the cost of abnormal amounts wasted materials,
labor or other resources incurred in the production is not included in the
costs of the asset.
Subsequent Measurement
• Capital Expenditures are those expenditures which extend the useful life
of the asset, increase the productivity of the asset, or enhance the quality of
the product.
a. Significant repairs and renewals
b. Betterment and replacements
c. Additions
d. Rearrangement of assets
Measurement after Recognition
• 1. Cost Model
• 2. Revaluation Model