Property, Plant &

Equipment
PROPERTY PLANT AND EQUIPMENT
ELEMENTS OF COSTS
 Purchase price plus nonrefundable duties and taxes less trade discounts and rebates
 Directly attributable costs:
~ Employee benefits of employees who constructed the property
~ Cost of site preparation
~ Initial delivery and handling costs
~ Installation and assembly costs
~ Professional fees
~ Cost of testing or trial less any proceeds from sale of products produced
during the trial
 Estimated dismantling cost at its present value
PROPERTY PLANT AND EQUIPMENT

Revaluation Model: Year-end revaluation and

impairment testing End of Useful
Cost Model: Impairment testing only Life

Jan.1 Dec.31 Dec.31 Dec.31

Acquisition date:
Mode of Acquisition:
 Cash & Credit Purchase
 Installment
 Issuance of Shares
 Issuance of Bonds
 Exchange/Trade In
 Donation or Grant
 Self Consruction
 Qualifying asset acquired
w/ Borrowing Cost
 Dismantling cost
Depreciation under Cost and Revaluation Model:
 Equal Charges  Activity Methods
• Straight Line Method • Working/Service Hours
• Composite • Output/Production Method
• Group
 Declining Balance Method:  Others
• Sum of the Years Digit • Inventory method
• Sum of the Half Years Digit • Retirement
• 200% DBM • Replacement
• 150% DBM
INITIAL MEASUREMENT
MODE OF
ACQUISITION PARTICULARS
By Purchase Cash Purchase: at cash price
Credit Purchase: at cash price less cash discount, regardless of payment date
By Installment PPE shall be debited for the following:
 Cash Price  If without cash price, the total of the following:
 Downpayment
 PV of note payable
By Issuance of PPE shall be debited in the following order of priority:
Own Shares 1st FV of PPE acquired Note : Share issuance
2nd FV of shares issued cost is debited to share
3rd Par or Stated Value of shares issued premium

By Issuance of PPE shall be debited in the following order of priority:

Bonds Payable 1st FV of Bonds issued Note: Bond issuance cost is
2nd FV of PPE acquired debited to discount or premium
3rd Face value of Bonds issued on bonds payable
INITIAL MEASUREMENT
MODE OF
ACQUISITION PARTICULARS
By Exhange / PPE shall be debited in the following order of priority: Commercial Substance
Trade-In With Without
1st FV of asset given + cash outflow − cash inflow Yes No
2nd Trade In: Trade In Value of asset given + cash payment Yes No
Not Trade In: FV of asset received Yes No
3rd CV of asset given + cash outflow − cash inflow Yes Yes
Note: Gain or loss on exchange is not recognized in the absence of commercial
substance.
By Self- PPE shall be debited for the following:
Construction  Actual costs of material, labor, and overhead, Note: Internal profit or
regardless of purchase price from outside parties. savings, & abnormal losses
are excluded from cost.
 Borrowing cost, if PPE constructed is a qualifying asset.
By Donation or PPE shall be debited at fair value plus direct costs at the time it becomes receivable.
Grant The account credited is as follows: Interest-Free Loan:
 Donated by a shareholder:
• Donated capital less registration and legal fees Cash xxx

 Donated by a third party/government Discount on Notes Payable xxx

• With restriction: Notes Payable xxx

Liability − Unearned grant income Def erred Grant Income xxx

• Without restriction: Sam e amount and amortized

using effe ctive intere st
Outright Income − Revenue from grant
ACCOUNTING FOR DONATION/GOVERNMENT GRANT
RELATED TO ASSET
Deferred Income Approach Asset Deduction Approach RELATED TO INCOME
Receipt Grant is credited to deferred Grant is credited to related Grant is credited to
grant income asset deferred grant income
Revenue  Based on the pattern
Recognition of costs/expenses
Depreciable │ ----Same pattern with the related fixed asset’s depreciation---│  Outright income if no
Nondepreciable │----Proportion to the costs in order to meet the condition------│ further cost required
Note: Regardless of approach the effect on income is THE SAME

Repayment for Debited to any deferred Debited to the related asset  The excess of the
Noncompliance grant income, the excess is and depreciated accordingly repayment over the
in profit or loss since acquisition date as carrying amount of
depreciation expense in the deferred income is
year of repayment. presented in profit or
Note: After repayment, the carrying value of the asset will be the loss
same in both approaches.
BORROWING COSTS
INITIAL RECOGNITION
Definition Interest and other costs that an entity incurs in connection with borrowing of funds which
includes the following:
 Interest expense calculated using the effective interest method.
 Finance charge with respect to finance lease
 Exchange difference arising from foreign currency borrowing to the extent that it is
regarded as an adjustment to interest cost

Qualifying asset Asset that necessarily takes a substantial period of time to get ready for intended use or
sale which includes the following:
 Manufacturing plant – Intangible asset
– Power generation facility – Investment property

Capitalization of  Directly attributable - mandatory capitalization, but only for qualifying assets.
Borrowing Costs  Not directly attributable - expensed immediately.

Types of Borrowing  Specific ~ Borrowed funds specifically for the acquisition of a qualifying asset.
 General ~ Borrowed funds the purpose of which varies depending on the entity’s
discretion.
BORROWING COSTS
INITIAL RECOGNITION
Specific All borrowing cost is capitalizable less income from investing the borrowed funds.
Borrowing
General Capitalizable borrowing cost ( not reduced by income from investing the borrowed
Borrowing funds) is computed as follows:
Actual borrowing cost on general borrowing

Lower
Average capital expenditure-GB x Average interest rate

Average capital expenditure (ACE) xxxx Total interest expense

Less: Specific borrowing (xxxx) 
ACE - General Borrowing xxxx Total general borrowings
BORROWING COSTS
INITIAL RECOGNITION
When to  The entity incurs expenditures for the asset
Capitalized?  The entity incurs borrowing costs
 The entity undertakes activities that are necessary to prepare the asset
for the intended use or sale.

When to  Suspension is allowed only for extended period of interruption

Suspend?  Suspension is not allowed during temporary delay and during technical
and administrative work

When to  When all the activities to prepare are complete

Cease?
LAND & BULDING
IMPROVEMENTS TO LAND AND BUILDING
Land Depreciable improvements to land such as fences, water
Improvements systems, drainage systems, sidewalks, pavements and cost of
trees, shrubs and other landscaping.

Building Immovable improvements to the building that are not part of the
Improvements construction blueprint and are constructed after the
completion of the building.
LAND & BULDING
LAND BUILDING OTHER
 Land Improvements
• Depreciable Land Improvements
• Nondepreciable ✔
 Special Assessment ✔
 Real Property Tax
• Unpaid as of acquisition date ✔
• After acquisition Outright expense
 Damages resulting from construction
• Insurance paid, if with insurance ✔
• Damages paid, if without insurance Outright expense
 Sidewalks, parking, etc.
• Part of the Blueprint ✔
• Not part of the Blueprint Land Improvements
LAND & BULDING
LAND BUILDING OTHER
 Building Fixtures
• Movable Furniture & fixtures
• Immovable Part of the blue print ✔
Not part of the blue print Building Improvement
 Ventilating / Lighting System / Elevator
• Installed during construction ✔
• Installed subsequent to construction
(Depreciation is for the shorter between Building
its useful life & the building's.) Improvements
 Payments to tenants to vacate the land/building
• To prepare the construction of new building ✔
• Not to prepare the construction of new building ✔
DISPOSITION OF CARRYING VALUE OF DEMOLISHED OLD BUILDING
TIMING OF DEMOLITION OF THE OLD BUILDING
FS Classification of Immediately after Several Years of Use
Old Building acquisition Subsequent to Acquisition
• PPE Loss Loss
• Investment Property Loss Loss
• Inventory Capitalized cost of New Building Loss
Net demolition cost
• To prepare the
Capitalized cost of New Capitalized cost of New
construction of new
Building Building
building
• Not to prepare the
construction of new Capitalized cost of the Land Capitalized cost of the Land
building
MACHINERY AND EQUIPMENT
INITIAL MEASUREMENT
 Purchase price
 Freight, handling, storage and other cost related to the acquisition
 Insurance while in transit
 Installation cost, including site preparation and assembling
 Cost of testing and trial run, and other cost necessary in preparing the machinery for
its intended use
 Initial estimate of cost of dismantling and removing the machinery and restoring the
site on which it is located, and for which the entity has a present obligation.
 Fee paid to consultants for advice on the acquisition of the machinery
 Cost of safely and platform surrounding the machine
 Cost of water device to keep machine cool.
MACHINERY AND EQUIPMENT

Tools  Machine tools include drills and punches while hand tools include
 Segregated from machinery account.
Pattern and  Used in designing or forging out a particular product. Depreciated over
dies its useful life if regularly used in the production.
 Customized pattern and dies are chargeable in full to the cost of
product under special order.
Containers  Returnable Big units or of great bulk are classified as PPE
Small containers that involve individually small amount as
in the case of bottles and boxes are classified as other
noncurrent assets.
 Not Outright Expense
returnable
MACHINERY AND EQUIPMENT
SUBSEQUENT COSTS
Capital Expenditure An expenditure that benefits the current and future periods.
Costs that INCREASE the service life, capacity of the asset

Revenue Expenditure An expenditure that benefits only the current period.

Costs that MAINTAIN the service life, capacity of the asset
MACHINERY AND EQUIPMENT
REVENUE
CAPITAL EXPENDITURE EXPENDITURE
ADDITION New Unit Depreciated separately Not Applicable
Expansion / Depreciated over the shorter between its life and the
Extension main asset.
IMPROVEMENT Major modifications and alterations that improves the service Not Applicable
BETTERMENT life/capacity
REPLACEMENT  Replacement of an entirely new one Minor Replacement
 Replacement of a significant part of an existing asset
Derecognized
(Outright Loss) Capitalized
Identifable Book value of replaced part Cost of
separately replacement
Not identifable Discounted value of cost of Cost of
separately replacement replacement
REPAIR Major Repair - Repair that improves the life or capacity of the property. Minor/Ordinary Repair
REARRANGEMENT Not Applicable Cost of Relocation