Chapter 03

Practical Accounting 1 SMC 😊 II.
On account subject to cash discount

Net of cash discounts whether taken or not
P1.003_ Property, Plant and Equipment – Acquisition
and Subsequent Expenditures III. Installment/Deferred payment
Interest bearing:
Nature of Property, Plant and Equipment Realistic/Market rate = Face value
Unrealistic/Below market rate:
Property, plant and equipment are tangible items that: 1) Cash price
(a) are held for use in the production or supply of goods or services, for rental to others, or for 2) PV of payments
administrative purposes; and
(b) are expected to be used during more than one period. Non-Interest bearing:
1) Cash price
Recognition 2) PV of payments
Items of property, plant, and equipment should be recognized as assets when it is probable that: IV. Issuance of own securities
• the future economic benefits associated with the asset will flow to the enterprise; and
• the cost of the asset can be measured reliably. Equity (e.g. Ordinary shares) – PFRS 2
1) FV of consideration received
This recognition principle is applied to all property, plant, and equipment costs at the time they are 2) FV of shares issued
incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and 3) Par value of shares issued
equipment and costs incurred subsequently to add to, replace part of, or service it.
Debt (e.g. Bonds payable) – PAS 39
Initial Measurement 1) FV of bonds payable (FL)
2) FV of consideration received
Property, plant, and equipment should be initially recorded at cost. 3) Face value of bonds payable
Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to V. Exchange
acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed Exchange – No Boot
to that asset when initially recognized in accordance with the specific requirements of other PFRSs, eg
PFRS 2 Share-based Payment. With commercial substance
1) FV of asset given up (AGU)
The cost of an item of property, plant and equipment comprises: 2) FV of asset received
3) Carrying amount of asset given up
(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates. Gain (loss) = FV of asset given – CA of asset given
(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to No commercial substance
be capable of operating in the manner intended by management. Carrying amount of asset given up
(c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it No gain or loss
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 Exchange – With Boot
inventories during that period.
With commercial substance
PPE acquisitions - Determination of purchase price Payor = FV of AGU + cash paid = FV of AR
Recipient = FV of AGU - cash received = FV of AR
I. Cash
Amount paid No commercial substance
Payor = CA of AGU + cash paid • Demolition of old building accounted for as derecognition (ie the difference between the
Recipient = CA of AGU – cash received proceeds and carrying amount recognized as gain or loss)
• Demolition costs are included in computing gain or loss on derecognition
VI. Trade-in
Same with exchange In accordance with PIC Q&A No. 2012-2
VII. Donation • Total cost allocated to land and building pro rata based on fair values REGARDLESS of intention
Fair value of asset received • Allocated cost or CA of old building generally recognized in profit or loss as loss on derecognition
• Exception, old building demolished right away and the new building is inventory
VIII. Government grant • Demolition costs are preferably included in the cost of the NEW Building.
Fair value of asset received
IX. Self-construction
DM + DL + Overhead
If appropriate, plus borrowing costs
Examples of directly attributable costs:

(a) costs of employee benefits (as defined in PAS 19 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); and
(f) professional fees.
Examples of costs that are not costs of an item of property, plant and equipment are:
(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); and
(d) administration and other general overhead costs.
Land Acquired with Building
Before PIC Q&A No. 2012-2
Old building demolished RIGHT AWAY:

• Total cost charged to Land including demolition costs
Old building USED INITIALLY before demolition:

• Total cost allocated to land and building pro rata based on fair values

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Chapter 03

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Practical Accounting 1 SMC 😊 II.

On account subject to cash discount

Examples of directly attributable costs:

Land Acquired with Building

Before PIC Q&A No. 2012-2

Old building demolished RIGHT AWAY:

Old building USED INITIALLY before demolition:

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