PROPERTY, PLANT AND EQUIPMENT (PAS 16)

A. CHARACTERISTICS (ALL should be present)

1 tangible - with physical substance
2 used in aid of the normal operations of the business
3 has more than 1 period of useful life
*4subject to depreciation except for land (for present or future plant site)
and artworks (in case of museums)

B. VALUATION
1 INITIAL (upon acquisition)
- based on COST (inclusive of Directly Attributable Costs)
- COST recognized based on the nine (9) modes of acquisition

2 SUBSEQUENT (on report date)

- entity has the choice to use any of the following but to be applied to the ENTIRE CLASS
of property, plant and equipment

A. COST MODEL
Carrying Value = Cost - Accumulated Depreciation**
** cumulated depreciation and impairment losses during its used/expired life,
as seen in the following entries:

RECOGNITION OF PERIODIC DEPRECIATION

ENTRY: Depreciation expense XX
Accumulated depreciation

RECOGNITION OF IMPAIRMENT FOR DEPRECIABLE ASSET

ENTRY: Impairment loss XX
Accumulated depreciation

B. REVALUATION MODEL
Revalued Carrying Value = Fair value (@ the date of revaluation) - Subsequent Accumulated Depreciation**
** cumulated depreciation and impairment losses during its used/expired life
** use the principles behind revaluation

1 REVALUATION
IF: the CARRYING VALUE < REVALUED AMOUNT**
**Priority: 1. FAIR VALUE @ the date of revaluation
2. In the absence of fair value, DEPRECIATED REPLACEMENT COST or
Depreciated Replacement Cost = Replacement Cost - Proporti
REPLACEMENT
2 Methods to Recognize
 A. Proportionate Approach
@ HistoricalCost @Replacement Cost
Cost 100% 10,000.0 xx
Accum. Dep'n** 60% 6,000.0 xx
Carrying value 40% 4,000.0 xx

** ensure that the Accumulated Depreciation is updated until the date of revaluation

UPON REVALUATION (at the date of revaluation), the entry to record the variance

ENTRY: PPE ( = appreciation)

Accumulated depreciation (= increase in A/D)
Revaluation surplus
PIECEMEAL REALIZATION

B. Elimination Approach
UPON REVALUATION (at the date of revaluation)

ENTRY: Acccumulated depreciation (as seen in the books)

PPE
( to eliminate A/D)

PPE
Revaluation surplus

2 IMPAIRMENT
IF: the CARRYING VALUE > RECOVERABLE AMOUNT**
**HIGHER: 1. FAIR VALUE less Cost to Dispose
2. VALUE IN USE**
**Present value of estimated net future cash flows

UPON IMPAIRMENT (at the date of impairment), the entry to record the variance

ENTRY: Impairment loss

Accumulated depreciation
( for depreciable assets)

ENTRY: Impairment loss

PPE
( for non-depreciable assets like Land)
 COST - A/D - AIL
s during its used/expired life,

XX

XX

ent Accumulated Depreciation**

s during its used/expired life

EPRECIATED REPLACEMENT COST or SOUND VALUE

nt Cost = Replacement Cost - Proportionate Accumulated depreciation
REPLACEMENT 21000
 @Replacement Cost Variance
21,000.0 11,000.0 Appreciation
12,600.0 6,600.0 Increase in A/d
8,400.0 4,400.0 Revaluation Surplus/Net appreciation
DRC / SOUND VALUE

updated until the date of revaluation

), the entry to record the variance

11,000.0 PPE A/D

on (= increase in A/D) 6,600.0 10,000
4,400.0 11,000
1466.66666667 21,000
REV. SURP 1,467
R/E 1,467

een in the books) 6000 PPE A/D

6000 10,000 6,000 6,000
4,400
8,400
4400
4400

mated net future cash flows

, the entry to record the variance

XX
XX

XX
XX
sets like Land)
A/D BOOK VALUE
6,000 4,000
6,600
12,600 8,400

A/D
6,000 4,000

- 8,400
PROPERTY, PLANT AND EQUIPMENT (PAS 16)

NINE (9) MODES OF ACQUISITION

1 Cash Purchase
ENTRY: PPE*** XX
Cash XX

***Cost = Cash paid + Directly attributable costs

IF 2 or more assets are purchased with a single price, use the relative sales price method
or the basket price allocation, example:
3 items were purchased at a single purchase price of P50, considering
the individual fair value of the items as follow:
Fair Value Fraction Sales Price Cost (to be recorded)
item 1 10 10/60 50 8
item 2 20 20/60 50 17
item 3 30 30/60 50 25
60 50

2 On Account
ENTRY: PPE*** XX
Accounts payable XX

***Cost = Invoice price - Cash discounts, regardless whether taken or not + Directly attributable costs

Note : INVOICE price = List pice - trade discounts

Example: X purchased an equipment amounting to P10,000, 2/10, n/20.

Upon purchase: Equipment 10,000

@ gross Accounts payable

If paid within Accounts payable 10,000

discount period: Equipment (2% x 10,000)
Cash

If NOT paid within Accounts payable 10,000

discount period: Cash

Purchase discount lost 200

Equipment (2% x 10,000)

3 On Installment (Deferred)
ENTRY: PPE*** XX ENTRY:
Discount on Notes payable XX
Notes payable XX
 ***Cost = Cash price equivalent+ Directly attributable costs
OR
***Cost = Present Value of the Consideration GIVEN+ Directly attributable costs

receivable payable Note : Discount on Notes payable = Installment Price - Cash Price
DIUP DIDP = Interest component to be amortized over t
DCIPP DPIPP credit period
DRIAP DPEAP = counterpart of Unearned interest income in
to Notes receivable
= amortization methods: effective interest m
outstanding method, straight-line meth

ENTRY: PPE*** XX
Discount on Notes payable XX
Notes payable XX
Cash XX

(with downpayment)

4 Issuance of OWN shares

ENTRY: PPE*** XX X acquired land from Y by issuing 10,00
Share Capital XX

***Cost = based on the priority+ Directly attributable costs

1. Fair value of asset RECEIVED
2. Fair value of shares GIVEN/issued 200/sh
3. Par value of shares GIVEN/issued 100/sh

5 Issuance of OWN bonds financail asset at amortized cost

ENTRY: PPE*** XX
Bonds payable XX

***Cost = based on the priority+ Directly attributable costs

1. Fair value of bonds GIVEN/issued
2. Fair value of asset RECEIVED
3. Book value of bonds GIVEN/issued

6 Exchange CASH
ENTRY: PPE*** XX the entity exchanged 10,000 of its own
Loss on exchange XX
Non-cash Asset XX
Gain on exchange XX
CASH
***Cost = based on the priority+ Directly attributable costs
With Cash Involved
 If WITH Commercial Substance Payor
1. Fair value of asset GIVEN + Cash
2. Fair value of asset RECEIVED + Cash
3. Book value of asset GIVEN + Cash

If LACKS Commercial Substance

3. Book value of asset GIVEN + Cash

Note: TRADE IN - is a form of exchange which usually involves a significant amount of cash,
thus, with commercial substance.
- involves a nondealer acquiring the asset from a dealer

7 Donation
ENTRY: PPE*** XX
Donated capital/SHARE PREMIUM XX For Shareholders
OR Deferred income XX For Non-Shareholders (with conditions)
OR Income XX For Non-Shareholders (without conditions)

***Cost = Fair value of the asset Received+ Directly attributable costs

Note: Expenses incurred in connection with donation, like registration fees and legal fees shall be charged
to "donated capital" account ( if donor is a shareholder), or expense (if non-shareholder)

Directly attributable costs incurred subsequently, such as installation and other costs necessary
to bring the asset to the location and condition for the intended use shall be capitalized

8 Government Grants (PAS 20)

ENTRY: PPE*** XX
Deferred income XX For Non-Shareholders (with conditions) like the GO

***Cost = Fair value of the asset Received+ Directly attributable costs

Note: Government grants are also known as subsidies, subventions, or premiums

Forgiveable loans from government is a government grant
The benefit of government loan with a NIL/zero or below-market rate of interest is a government gr
The benefit is measured as = FACE amount of loan - Present value of loan
ENTRY: Discount on notes payable XX
Deferred income XX

Government Assistance is action by government designed to provide an economic benefit specific to an

or range of entities qualifying under certain criteria. No value can be reasonably be placed upon it

Classifications of Government Grants

1. Grant related to Asset - whose primary condition is for the entity to purchase, construct or acquire
 a long-term asset

2. Grant related to Income - other than related to asset

Accounting for Government Grants

** to be recognized as income on a systematic basis over the periods in which the entity recognizes
as expenses the related costs for which the grant is intented

ENTRY: Deferred income XX

Income from gov. grants XX

A. Grant in recognition of specific expenses shall be recognized as income over the period of the
related expense
GIVEN: Grant received in cash 1,000,000
Projected expenses 1st yr 500,000
2nd yr 400,000
3rd yr 300,000
total 1,200,000

ENTRY: Cash 1,000,000

Deferred income

ENTRY: Deferred income 416,666.67

Income from gov. grants
(1,000,000 x 5/12)
income for the 1st year

B. Grant related to depreciable assets shall be recognized as income over the periods
and in proportion to the depreciation of the relaed asset
GIVEN: Grant received in cash 1,000,000
To construct a building which costs 1,500,000
Est. useful life of building 20 yrs

ENTRY: Cash 1,000,000

Deferred income

ENTRY: Deferred income 50,000.00

Income from gov. grants
(1,000,000 x 20 yrs)
income for the 1st year

C. Grant related to non-depreciable assets requiring fulfillment of certain conditions shall be

recognized as income over the periods which bear the cost of meeting the conditions
GIVEN: Grant received in non-depreciable asset ex. Land
 To construct a building which costs
Est. useful life of building

ENTRY: Land 1,000,000

Deferred income

ENTRY: Deferred income 50,000.00

Income from gov. grants
(1,000,000 x 20 yrs)
income for the 1st year

D Grant that becomes receivable as compensation for expenses or losses already incurred
for the purpose of giving immediate financial support to the entity with no further related
costs shall be recognized as income in the period of which it become receivable or
recognized immediately. ( during calamities, war and the like)
GIVEN: Grant received in cash 1,000,000

ENTRY: CASH 1,000,000

Income from gov. grants

Repayment of Government Grants

*** a grant that becomes repayable because of noncompliance with conditions shall be accounted
for as a change in accounting estimate

** if grant related to income = to be applied first against any unamortized deferred income and any exc
shall be recognized immediately as expense
GIVEN: Grant received in cash 1,000,000
To construct a building which costs 1,500,000
Est. useful life of building 20 yrs
At the end 4th yr, repayment was made due to noncompliance to conditions

Deferred income balance , end of 4th yr

Initial balance
Less: Amortized for 4 years
[(1,000,000/20) x 4 yrs]
Ending balance

ENTRY: Deferred income 800,000

Loss on repayment of grant 200,000
Cash
Entry to repay grant

Note: the amount of grant is to be repaid in FULL

** if grant related to asset = shall be recorded by increasing the carrying amount of the asset
 = the cumulative additional depreciation that would have been recognized
to date in the absence of the grant shall be recognized immediately as an expense.

ENTRY: Building 1,000,000

Cash
Entry to repay grant

Total recorded dep'n Dep'n if no grant

Cost 500,000 1,500,000
EUL 20 20
used life 4 4
100,000 300,000

ENTRY: Depreciation expense 200,000

Accumulated depreciation
Additional Entry to repay grant

9 Construction
ENTRY: PPE*** XX
Cash XX

***Cost = Material + Labor + Overhead + Borrowing cost *

Note: Abnormal amount of wasted material, labor or overhead incurred in the production
of self-constructed asset is an outright EXPENSE

Intervening Operations = operations that may occur before or during construction but are
not necessary to bring the item to the location and condition for intended use.
Examples are: Use of building site as car park until construction starts
= the income and related expense of incidental operations are
recognized in the profit or loss.

BORROWING COST (PAS 23)

= these are interest and other costs that an entity incurs in connection with borrowing funds.
= include interest expense, finance charge, and exchange difference arising from foreign currency
borrowing and is regarded as an adjustment to interest cost.

= should be capitalized or added to the cost of the asset if directly attributable to the construction
acquisition or production of a QUALIFYING ASSET**. (Mandatory Capitalization)
**Qualifying asset = an asset that takes a substantial period of time to
get ready for the intended use or sale, such as Manufacturing plant,
Power generation facility, Intangible Asset, Investment Propety
= not included are:
1. Assets measured at fair value , such as BIOLOGICAL ASSETS
2. INVENTORY produced on a repetitive basis
 3. Assets that are ready for their intended use or sale
when acquired

Note: A constructed building is a qualifying asset, but

A purchased building is NOT a qualifying asset

= all other borrowing cost is to be expensed outright

= capitalization of the borrowing cost starts when the 3 conditions are present
1. When the entity incurs expenditures for the asset
2. When the entity incurs borrowing cost
3. When the entity undertakes activities that are necessary to prepare the asset for th intended
these include technical and administrative work prior to the commencement of physical
construction such as drawing up plans and obtaining permit for a building

= capitalization of the borrowing cost ends when substantially all the activities necessary to prepare
the qualifying asset for the intended use or sale are complete

Classifications of Borrowing Costs

1. Specific borrowing - funds borrowed specifically for the purpose of acquiring the qualifying asset

2. General Borrowing - funds borrowed generally, meaning only a part of it is used for the
acquiring of qualifying asset

Capitalizable Borrowing Costs

1. For Specific borrowing:
Capitalizable Borrowing cost = Actual Borrowing cost or (Principal x Rate x time)
Less: Investment income from the temporary investment
of the fund borrowed
Borrowing cost Added to the Asset

2. For General borrowing:

Capitalizable Borrowing cost = Average Carrying Amount of asset
Multiply by: Capitalization rate**
Borrowing cost Added to the Asset

**Capitalization rate: Total annual borrowing cost

Total general funds borrowed

3. For Combined Specific borrowing and General borrowing:

Capitalizable Borrowing cost = Actual Borrowing cost or (Principal x Rate x time)
( from SPECIFIC ) Less: Investment income from the temporary investment
of the fund borrowed
Borrowing cost Added to the Asset
Capitalizable Borrowing cost = Average Carrying Amount of asset
( from GENERAL) Less: Specific fund borrowed
General fund borrowed
Multiply by: Capitalization rate**
Borrowing cost Added to the Asset
TOTAL BORROWING COST TO BE ADDED TO ASSET

COST ACTUAL EXPENDITURES

ADD: CAPITALIZABLE BC
 Dismantling
PPE 10+3
Discount (interest) 2
cash 10
provision 5

e sales price method

rice of P50, considering

t (to be recorded)

or not + Directly attributable costs

10,000

9,800
200
9,800

10,000

9,800
200

PPE*** XX

Notes payable XX
 PVF PV
butable costs CASH 3,000 1 3000
NOTES PAYABLE 12,000 3,000 2.5 7500
nt Price - Cash Price 15,000 10,500
component to be amortized over the

part of Unearned interest income in relation

Notes receivable
ation methods: effective interest method,
standing method, straight-line method

quired land from Y by issuing 10,000 sh, par P100.

LAND 1,000,000
ORD. SHARE CAP 1,000,000

INV. IN BONDS EQUIPMENT

EQUIPMENT BONDS PAYABLE

entity exchanged 10,000 of its own shares for a piece of land

With Cash Involved

 Recipient
- Cash
- Cash
- Cash

- Cash

t amount of cash,

holders (with conditions)

holders (without conditions)

s and legal fees shall be charged DONATED CAPITAL

(if non-shareholder) CASH

n and other costs necessary

shall be capitalized

holders (with conditions) like the GOVERNMENT

NOTES PAYABLE
rate of interest is a government grant. DEFERRED INCOME

CASH
NOTES PAYABLE

e an economic benefit specific to an entity

e reasonably be placed upon it

to purchase, construct or acquire

s in which the entity recognizes

ncome over the period of the

5/12
4/12
3/12

1,000,000

416,666.67

over the periods

BUILDING 1,500,000
1,000,000 CASH 1,500,000

50,000.00

ertain conditions shall be

eeting the conditions
1,000,000
 1,500,000
20 yrs

1,000,000

50,000.00

osses already incurred

ntity with no further related
come receivable or

1,000,000

h conditions shall be accounted

tized deferred income and any excess

o noncompliance to conditions

1,000,000

200,000
800,000
grant related to an income
CASH 1,000,000
DEFERRED INCOME 1,000,000
1,000,000
BLDG 1,500,000
CASH 1,500,000
aid in FULL
grant related to an asset
ying amount of the asset CASH 1,000,000
 hat would have been recognized BLDG 1,000,000
mediately as an expense.
BLDG 1,500,000
CASH 1,500,000
1,000,000

'n if no grant

200,000

200,000

the production

g construction but are

ntended use.

al operations are

on with borrowing funds.

arising from foreign currency

ttributable to the construction

Capitalization)
stantial period of time to
uch as Manufacturing plant,
et, Investment Propety

, such as BIOLOGICAL ASSETS

petitive basis
r intended use or sale

fying asset, but

ualifying asset

o prepare the asset for th intended use,

o the commencement of physical
ermit for a building

e activities necessary to prepare

of acquiring the qualifying asset

art of it is used for the

PRINCIPAL 10
pal x Rate x time) xx RATE 10% 1
he temporary investment 10YRS
xx 850K
xx 100

multiply to the numbers of months then divide in 12

xx amount of your expenditure multiply on how many months to the next expenditure
xx
xx

total interest expense

pal x Rate x time) xx

he temporary investment
xx
xx
 xx
XX
xx
xx
xx
E ADDED TO ASSET xx
deferred income
income
onths to the next expenditure then extend it then get the total then divide
PROPERTY, PLANT AND EQUIPMENT (PAS 16)

SUBSEQUENT COST
Generally, recognized as outright expense.

**For PPE, if the subsequent cost merely maintains the existing level of the standard performance,
then OUTRIGHT EXPENSE

**For PPE, if the subsequent cost will increase the future service potential or future economic benefit
of the asset, then CAPITALIZE or ADD to the COST of asset.
Future economic benefit = extends life of the asset
= increases the capacity of the asset
= improves efficiency and safety of the asset

KINDS OF SUBSEQUENT COSTS FOR PPE

1 ADDITIONS
- these are modifications or alterations which increase the physical size or capacity of the asset
A. Entirely new unit = to be depreciated over new unit's useful life
B. Expansion, enlargement, extension of an OLD asset = to be depreciated over the
remaining useful life of the asset to which it is part OR the useful life of the expansion
whichever is shorter

- ADDED to the cost of the asset

2 IMPROVEMENTS or BETTERMENTS
- these are modifications or alterations which increase the service life or capacity of the asset
- these may represent replacement of an asset or part thereof with one of a BETTER or SUPERIOR quality
- ADDED to the cost of the asset

3 REPLACEMENTS
- these involve substitution but the new asset is not better than the old asset when acquired
3 CLASSIFICATION
1. Replacement of old asset by a new one = capitalizable as a new asset
2. Replacement of major parts = extra ordinary repair = ADDED to the cost of asset
3. Replacement of minor parts = ordinary repairs = Outright expense

IF the MAJOR part replacement is separately identifiable:

> debit the replacement to the PPE account @ current replacement cost which is discounted
ENTRY: PPE XX
Cash XX

> dispose the replaced part

ENTRY: Loss on retirement XX
 Accumulated depreciation XX
PPE (@historical cost) XX

IF the MAJOR part replacement is NOT separately identifiable:

> debit the replacement to the PPE account @ current replacement cost which is discounted
ENTRY: PPE XX
Cash XX

> dispose the replaced part

ENTRY: Loss on retirement XX
Accumulated depreciation XX
PPE (@replacement cost) XX

4 REPAIRS
- these are expenditures used to restore assets to good operating condition upon their breakdown
2 CLASSIFICATION
1. Extra ordinary repair = ADDED to the cost of asset
2. Ordinary repairs = Outright expense

- maintenance = is preventive or keeps the asset in good condition = Outright expense

5 REARRANGEMENT COST
- these are expenditures used to relocate or redeploy an existing PPE
- IFRS expressly mandates that costs of relocating existing PPE are EXPENSED as incurred

X
nomic benefit

old
7 yrs
ity of the asset
10 7 yrs
ted over the NEW
l life of the expansion 10 yrs

after 3 yrs

y of the asset
TER or SUPERIOR quality

hen acquired

cost of asset
machinery
a 40
b 50
st which is discounted c 10 100
ppe
100,000
60,000 50,000
 160,000 50,000

110,000
st which is discounted

n their breakdown
PROPERTY, PLANT AND EQUIPMENT (PAS 16)

DEPRECIATION
> systematic allocation of the depreciable amount of an asset over the useful life
** Depreciable amount = Cost - Residual value

> a matter of cost allocation and NOT of valuation

> its objective is to have each period benefitting from the use of the asset bear an equitable share
of the asset cost

> ALL property, except for land, shall be depreciated on a systematic basis over the useful life
regardless of the earnings of the entity

> STARTS : when the asset is available for use

STOPS: when the asset is derecognized or disposed of
4 Ways to Derecognize
1. Sale 3. Retire
2. Exchange 4. Destroy

**Temporary idleness of the PPE does not stop depreciation

**If the PPE is reclassified to "held for sale", depreciation stops

> Financial statement presentation:

** an EXPENSE account which may be part of the Cost of goods Manufactured and/or
Operating Expense

ENTRY: Depreciation expense XX

Accumulated depreciation XX

FACTORS OF DEPRECIATION
1 Depreciable cost or amount
2 Residual value = also known as scrap value or salvage value
= estimated net amount currently obtainable if the asset is at the end of the useful life
3 Useful life = the period over which an asset is expected to be available for use by the entity

KINDS OF DEPRECIATION
1 Physical Depreciation = related to the wear and tear and deterioration caused by:
a. Wear and tear = frequency of use
b. Passage of time = non-use
c. Action of elements such as wind, rain, dust
 d. Casualty or accident such as fire, flood, earthquake
e. Disease or decay

2 Functional or Economic Depreciation = related to inadequacy, supersession and obsolescence

DEPRECIATION METHODS

1 STRAIGHT LINE METHOD (SLM)

Depreciation expense = Cost - Residual value
Est. Useful life
OR
Depreciation expense = Depreciable Cost
Est. Useful life
OR
Depreciation expense = SLRate** x Depreciable Cost

**SLRate = 100%
Est. Useful life

>> this method is adopted when the principal cause of depreciation is PASSAGE OF TIME
>> this method considers function of time rather than function of usage
>> widely used for simplicity
>> constant charge over the useful life

2 COMPOSITE or GROUP METHOD

Depreciation expense = Composite Rate** x Total Cost

**Composite or Group Rate = Total Annual Depreciation

Total Cost

Composite life = Total Depreciable Amount

Total Annual Depreciation

>> composite method is for assets that are dissimilar in nature and are grouped and treated as unit
>> group method is for assets that are similar in nature and are grouped and treated as unit

>> the Accumulated depreciation under this method is not related to any specific asset
>> when an asset in the group is retired, no gain or loss is recognized

ENTRY: Cash (net proceeds) XX

Accumulated depreciation XX
 PPE (@ cost) XX
** the accumulated depreciation serves as the balancing figure

3 VARIABLE CHARGE or ACTIVITY METHODS

A. Output or Production Method
Depreciation expense = Depreciation Rate x Actual Units Produced

**Depreciation Rate = Depreciable Cost

(per unit) Est. total # of units to be produced

B. Working Hours Method

Depreciation expense = Depreciation Rate x Actual Hours Worked

**Depreciation Rate = Depreciable Cost

(per hour) Est. total # of hours to be worked

>> depreciation is more a function of use

4 SUM OF THE YEARS' DIGITS (SYD) METHOD

Depreciation expense = SYD Fraction x Depreciable Cost

**SYD Fraction = Numerator Life, from highest to lowest

Denominator = Life ( life + 1)
2

>> one of the methods under the decreasing charge or accelerated method
>> accelerated depreciation is on the philosophy that new assets are generally capable of producing
more revenue in the earlier years than in the later years

5 DOUBLE DECLINING BALANCE METHOD (DDBM)

Depreciation expense = DDBRate x Book Value

**DDBRate = SLRate x 2

6 INVENTORY METHOD
Tools, beginning xx 100
Add: Tools purchases xx 40
Tools available for use xx 140
 Less: Sale of used tools xx
Tool, end, should be xx 140
Less: Actual invty of tools xx 30
Depreciation expense xx 110

>>applied generally to assets which are small and inexpensive

>> no accumulated depreciation account is maintained

ENTRY: Depreciation expense XX

PPE (tools) XX

7 RETIREMENT METHOD
Depreciation expense = Original cost of the asset RETIRED
Less: Salvage Proceeds

>> no depreciation is recorded until the asset is Retired

8 REPLACEMENT METHOD
Depreciation expense = Replacement cost of the asset RETIRED
Less: Salvage Proceeds

>> no depreciation is recorded until the asset is Retired AND Replaced

CHANGE IN ACCOUNTING ESTIMATE

Change in useful life and Change in Depreciation method
>> the above changes shall be accounted as a change in accounting estimate which are to be
adjusted current and prospectively (future periods)
net sales
less: cos
gross profit
less: opex
net income
REMAINING BOOK VALUE - RESIDUAL VALUE
REMAINING EST USEFUL LIFE
eciable Cost
units to be produced

eciable Cost
hours to be worked

, from highest to lowest

5(5+1)/2= 1+2+3+4+5 15
 land land imp bldg equipt
15,600,000
208,000
24,000
140,000
430,000
184,000
940,000
400,000
80,000
78,000,000
1,600,000
4,567,000
- 127,000
50,000
125,000
- 65,000
15,912,000 1,600,000 80,094,000 4,550,000 -
 land bldg adj to ni
- 120,000
1,512,000 378,000
160,000 40,000 - 50,000
88,320 22,080
60,000
- 360,000
- 300,000
96,000 24,000 - 120,000
1,856,320 524,080 - 950,000
decrease net income

1,800,000 450,000 2,250,000

0.80 0.20

LAND PVF
DOWNPAYMENT CASH 2,000,000 1.000000
BALANCE - NIB NOTES PAYABLE 1,600,000 3.790787

RECORDED COST
SHLD BE ENTRY:
LAND 8,065,259
DISCOUNT ON NOTES PAYABLE 1,934,741
CASH
NOTES PAYABLE

BLDG
FAIR VALUE OF THE SHARES ISSUED 7,000,000
RECORDED COST 6,500,000 500,000
SHLD BE ENTRY:
BLDG 7,000,000
ORD SHARE CAP (PAR 50)
SHARE PREMIUM-OS

EQUIPMENT
EQUIPMENT 1 INVOICE PRICE 2,000,000
LESS: CASH DISCOUNT - 200,000
 COST 1,800,000 2,000,000

EQUIPMENT 2
PURCHASE PRICE 4,000,000
NON REFUNDABLE TAXES 250,000
INSTALLATION COST 50,000
DISMANTLING COST
(161,051 x .6209213) 100,000
COST 4,400,000.00 4,000,000

EQUIPMENT 3
FAIR VALUE OF DONATED
ASSET 1,200,000

TOTAL EQUIPMENT 7,400,000

FURNITURE AND FIXTURES 3,200,000 3,500,000

ADJ COST ACC. DEP'N CARRYING VALUE

LAND 8,065,259 - 8,065,259
BLDG 7,000,000 700,000 6,300,000
EQUIPMENT -
1 1,800,000 540,000 1,260,000
2 4,400,000 660,000 3,740,000
3 1,200,000 120,000 1,080,000
FURN & FIXT 3,200,000 288,000 2,912,000
2,308,000 23,357,259

BLDG DEX
10.00 700,000

EQUIPMENT SV DEPRECIABLE COST DEX

1 0.33 180,000 1,620,000 540,000
2 0.33 440,000 3,960,000 660,000
3 0.33 120,000 1,080,000 120,000

F&F 320,000 2,880,000 288,000

PV OF THE CONSIDERATION
2,000,000
6,065,259 pvf for 10% at 5 yrs
8,065,259
10,000,000 - 1,934,741
AJE:
DISCOUNT ON NOTES PAYABLE 1,934,741

2,000,000 LAND 1,934,741

8,000,000
INTEREST EXPENSE 606,526
DISCOUNT ON NOTES PAYABLE 606,526

DATE PAYMENT INTEREST PRINCIPAL PV

1 6,065,259
1,600,000 606,526 993,474 5,071,785
5,000,000 AJE:
2,000,000 BUILDING 500,000
SHARE PREMIUM 500,000

AJE:
PURCHASE DISCOUNT LOST 200,000
- 200,000 EQUIPMENT 200,000

aje:
EQUIPMENT 400,000
discount on liability 61,051
EXPENSE 300,000
400,000 provision 61,051

aje
1,200,000 EQUIPMENT 1,200,000
DONATED CAPITAL 1,100,000
expense 100,000

- 300,000 SHLD BE:

FURNITURE AND FIXTURES 3,200,000
DISCOUNT ON NOTES PAYABLE 300,000
CASH 1,000,000
NOTES PAYABLE 2,000,000
ORD SHARE CAPITAL 500,000
aje:
DISCOUNT ON NOTES PAYABLE 300,000
Furniture & fixt 300,000

interest expense
discount on notes

33% =5*(6)/2 =15 =5/15

 entry made:
Land 10M
cash 2M
notes payable 8M

entry made:
Building 6.5M
Ord share cap 5M
Share prem 1.5M

entry made: shld be:

Equipment 2M equipment 2M
 Accts payable 2m accts payble
Accts payable 2m Accts payble 2m
Cash 2m Cash
purchase disct lost 200k
equipment
entry made: shld be: 1
Equipment 4M Equipment 4.4M
cash 4m cash
Expenses 300K provision for dism.cost
cash 300k 2
Equipment 4,400,000
entry made: Discount on liability 61,051
Expense 100K cash
Cash 100K provision for dism.cost
Interest expense
shld be: Discount
equipment 1.2M
Donated cap 1.2M
Donated cap 100K
Cash 100k
2m

2m

200k

4.3M
.1M liability

4,300,000
161,051
carrying value < revalued amount REVALUATION
1. FAIR VALUE
2. In the absence of #1, Depreciated replacement cost/
Sound value

> recoverable amount IMPAIRMENT

whichever is higher
FV less cost to sell Value in use
( Present value of estimated N

Cost Replacement Cost variances

Cost 1,200,000 1,500,000 300,000 appreciation
A/d 0.30 360,000 450,000 90,000
Carrying value 840,000 1,050,000 210,000 revaluation surplus / net appr

** 1.2M/10 years x 3years

ENTRIES: Machinery 300,000
Accum. Depn 90,000
Revaluation surplus 210,000

12/31/2019 Depreciation expense 150,000

Accum. Depn 150,000

Dex = Remaining BV - Salvage Value/ Remaining EUL

Revaluation surplus 30,000

Retained earnings 30,000

cost 1,500,000 bal 12/31/18

less: A/d 600,000 less: real
12/31/2019 Cv 900,000 bal 12/31/19

cost 1,500,000 bal 12/31/19

less: A/d 750,000 less: real
12/31/2020 Cv 750,000 bal 12/31/20

Cash 800,000
Accum dep 750,000
Machinery 1,500,000
 Gain on sale 50,000

Revaluation surp 180000

Retained earnings 180000
VALUATION

ement cost/

esent value of estimated Net cash flows?

preciation

valuation surplus / net appreciation

210,000
30,000
180,000

180,000
-
180,000
carrying value < revalued amount REVALUATION
1. FAIR VALUE
2. In the absence of #1, Depreciated replacement cost/
Sound value

> recoverable amount IMPAIRMENT

whichever is higher
FV less cost to sell Value in use
( Present value of estimated N

Cost Replacement Cost variances

Cost 1 1,200,000 2,142,857 942,857 appreciation
A/d 0.30 360,000 642,857 282,857
Carrying value 0.70 840,000 1,500,000 660,000 revaluation surplus / net appr

** 1.2M/10 years x 3years

ENTRIES: Machinery 942,857
Accum. Depn 282,857
Revaluation surplus 660,000

12/31/2019 Depreciation expense 214,286

Accum. Depn 214,286

Dex = Remaining BV - Salvage Value/ Remaining EUL

Revaluation surplus 94,286

Retained earnings 94,286

cost 2,142,857 bal 12/31/18

less: A/d 857,143 less: real
12/31/2019 Cv 1,285,714 bal 12/31/19

cost 2,142,857 bal 12/31/19

less: A/d 1,007,143 less: real
12/31/2020 Cv 1,135,714 bal 12/31/20

Cash 800,000
Accum dep 1,007,143
Machinery 1,500,000
 Gain on sale - 335,714

Revaluation surp 180000

Retained earnings 180000
VALUATION

ement cost/

esent value of estimated Net cash flows?

preciation

valuation surplus / net appreciation

660,000
94,286
565,714

565,714
-
565,714
Carrying value as of 12/31/16
cost 24,000,000
Less: A/d
jan. balance 6,000,000
dep'n expense 2016
(24-6M/9yrs) 2,000,000 8,000,000 16,000,000
Recoverable amount 14,000,000
impairment loss 2,000,000

Impairment loss 2,000,000

Accum dep'n 2,000,000

2017 Depreciation expense 1,750,000

actual as if no imp
2018 Cost 24,000,000 24,000,000
Less: Accum dep'n 13,500,000 12,000,000
31-Dec CV 10,500,000 12,000,000

recoverable amount 15,000,000 entry:

Cv if no imp 12,000,000 Accum dep'n
3,000,000 Gain on recovery

Dep'n
Accum depn
 1,500,000
gain on impairment recovery

1,500,000
1,500,000

2,000,000
2,000,000
GIVEN: COST REPLACEMENT
EQUIPMENT 3,000,000 4,800,000
ACCUMULATED DEPRECIATION 750,000
AGE OF ASSET YEARS 5 150,000
USEFUL LIFE OF ASSET YEARS 20

COST REPLACEMENT VARIANCE

EQUIPMENT 3,000,000 4,800,000 1,800,000
LESS: ACC DEP'N 25% 750,000 1,200,000 450,000
BOOK VALUE 2,250,000 3,600,000 1,350,000 1,350,000

1 UPON REVALUATION (JANUARY 1, 2021)

EQUIPMENT 1,800,000
ACCUMULATED DEPRECIATION 450,000
REVALUATION SURPLUS 1,350,000

DEPRECIATION FOR 2021 (DEC 31, 2021) PIECEMEAL REALIZATION

DEX =( C - SV)/EUL
= (RBV - SV)/REUL

Remaining book value, 1/1/21 3,600,000

Divided by: RemainingEUL (20-5) 15
Depreciation per year 240,000

Depreciation expense 240,000 BALANCE OF REVALUATIO

Accumulated depreciation 240,000

CARRYING VALUE , 12/31/21

Cost 4,800,000
less: Accum. Dep 1,440,000
Book value/Carrying value 3,360,000
 DATE OF ACQ JAN1, 2016
DATE OF REVALUATION JAN 1, 2021

ECEMEAL REALIZATION
Revaluation surplus, 1/1/21 1,350,000
Divided by: Rem EUL 15
Realizatiion 90,000

Revaluation surplus 90,000

Retained earnings 90,000

ALANCE OF REVALUATION SURPLUS, 12/31/21

Revaluation surplus, 1/1/21 1,350,000
Less: Piecemeal real 90,000
Revaluation surplus, 12/31/21 1,260,000
GIVEN: COST REPLACEMENT
EQUIPMENT 6,500,000 9,200,000
RESIDUAL VALUE 500,000 200,000
ACCUMULATED DEPRECIATION 1,000,000 (c-sv)/eul
AGE OF ASSET YEARS 2
USEFUL LIFE OF ASSET YEARS 12

COST REPLACEMENT VARIANCE

EQUIPMENT 6,500,000 9,200,000 2,700,000
Less: Residual value 200,000 200,000 -
Depreciable cost 6,300,000 9,000,000 2,700,000
LESS: ACC DEP'N 16.67% 1,000,000 1,500,000 500,000
BOOK VALUE 5,300,000 7,500,000 2,200,000 2,200,000

1 UPON REVALUATION (JANUARY 1, 2021)

EQUIPMENT 2,700,000
ACCUMULATED DEPRECIATION 500,000
REVALUATION SURPLUS 2,200,000

DEPRECIATION FOR 2021 (DEC 31, 2021) PIECEMEAL REALIZATION

DEX =( C - SV)/EUL
= (RBV - SV)/REUL

Remaining book value, 1/1/21 7,500,000

Divided by: RemainingEUL (12-2) 10
Depreciation per year 750,000

Depreciation expense 750,000 BALANCE OF REVALUATIO

Accumulated depreciation 750,000

CARRYING VALUE , 12/31/21

Cost 9,200,000
less: Accum. Dep 2,250,000
Book value/Carrying value 6,950,000
 DATE OF ACQ JAN1, 2019

DATE OF REVALUATION JAN 1, 2021

ECEMEAL REALIZATION
Revaluation surplus, 1/1/21 2,200,000
Divided by: Rem EUL 10
Realizatiion 220,000

Revaluation surplus 220,000

Retained earnings 220,000

ALANCE OF REVALUATION SURPLUS, 12/31/21

Revaluation surplus, 1/1/21 2,200,000
Less: Piecemeal real 220,000
Revaluation surplus, 12/31/21 1,980,000