Ppe Part 1 Notes

PROPERTY, PLANT AND EQUIPMENT an entity to obtain the future economic benefit
from its other assets. This is considered as PPE.

Are tangible assets that are held for use
in production or supply of goods or services for DIRECTLY ATTRIBUTABLE COST
rental to others, or for administrative purposes  Initial deliver and handling cost
and are expected to be used during more than  Installation and assembly cost
one period  Cost of site preparation
MAJOR CHARACTERISTICS  Professional fees
 Cost of testing whether the asset is
1. Tangible assets – there is physical functioning properly
substance.  Cost of employee benefits arising
2. Used in business – used in production of directly from the acquisition
goods regularly.
3. More than one year – expected to be COST NOT QUALIFYING FOR RECOGNITION –
used for more than a year. EXPENSED OUTRIGHT
NOTE: There are PPE that cannot be  Cost of opening a new facility
depreciated so “DEPRECIABLE” is not a major  Cost of introducing a new product or
characteristic of PPE. service, including cost of advertising
and promotion
INITIAL MEASUREMENT
 Cost of conducting business in a new
COST – is the amount of cash or cash equivalent location or with a new class of
paid and the fair value of other consideration customer, including cost of staff training
given to acquire an asset at the time of  Administration and other general
acquisition or construction. overhead
 Cost incurred while on item is capable
ELEMENTS OF COST of operating in the manner intended by
1. Purchase Price – includes non- management has yet to be brought in
refundable taxes and import duties. to use on is operating at less than full
a. Discount will be deducted on capacity
the date of acquisition whether  Initial operating losses
taken or not by the  Cost of relocating or reorganizing part
management. or all of an entity’s operations
2. Directly Attributable Cost – cost that are
Major spare parts, standby equipment and
necessary to bring the asset to its
servicing equipment are recognized when they
condition and location for its intended
meet the definition of PPE. (Whether or not in
use.
can that it can be used in connection with an
3. Dismantling Cost (estimate) – will be
item of PPE).
happening later but will be included in
the cost. To avoid undervaluing of PPE. Note: If to support PPE, categorized as PPE.
Safety and Environmental Equipment. Do Spare parts, standby equipment and

not directly increase the future economic servicing equipment are recognized if they are
benefits of any existing PPE but is necessary for expected to be used during more than one
period.
LAND ACCOUNT
Classification depends on nature and purpose LAND IMPROVEMENT
on why you are acquiring the land. If permanent, charge to land account.
 Can be owner-occupied (PPE) – future If depreciable improvement, charged to “land
plant site. improvement”.
 Can be investment property – for
capital appreciation. EXAMPLES OF DEPRECIABLE IMPROVEMENT
 Can be inventory – selling land or land  Fences
for sale.  Water system
COST CHARGABLE TO LAND  Drainage system
 Sidewalks
a. Purchase price  Pavements
b. Fees for registration and transfer of title  Cost of trees, shrubs, and other
c. Broker or agent commission landscaping
d. Legal fees and other expenditures for
establishing clean title
e. Escrow fees
f. Cost of survey
g. Mortgage, encumbrances, and interest
on such mortgages assumed by the
buyer
h. Cost of relocation or reconstruction of
property belonging to others in order to
acquire possession
i. Payment to tenants to induce them to
vacate the land in order to prepare the
land for the intended use BUT NOT to
make room for the construction of new
building
j. Unpaid taxes up to the date of
acquisition assumed by the buyer
k. Cost of option to buy the acquired land
l. Cost of permanent improvements such
as cost of clearing, cost of grading,
leveling and landfill
m. Special assessment
BUILDING ACCOUNT I. Cost of temporary safety fence around
construction site and cost of
Classification depends on nature and purpose of subsequent removal thereof
acquisition J. Safety inspection fee
 Can be owner-occupied (PPE) – for OTHER ISSUES
business use.
 Can be investment property – capital 1) Sidewalks, pavements parking lot,
appreciation or rental to others. driveways – if included in blueprint of
 Can be inventory – building held for the building, they are capitalizable as
sale. COST OF THE BUILDING. If not, it is
LAND IMPROVEMENT
COST OF BUILDING WHEN PURCHASED 2) Ventilating system, lighting system,
elevator – if included in blueprint of the
a) Purchase price
building, they are capitalizable as COST
b) Legal fees and other expenses incurred
OF THE BUILDING. If not, it is BUILDING
in connection with the purchase
IMPROVEMENT
c) Unpaid taxes up to the date of
3) Building fixtures – if movable, treated as
acquisition
furniture and fixtures. If permanent
d) Interest, mortgage, liens, and other
part of structure of the building, it is
encumbrances on the building assumed
capitalized as COST OF THE BUILDING
by the buyer
4) Claims for damages – are treated as an
e) Payment to tenant to induce them to
expense.
vacate the building
f) Any renovating or remodeling cost
incurred to put a building purchased in
a condition suitable for the intended
use such as lighting installation,
partitions, and repairs
COST OF BUILDING WHEN CONSTRUCTED
A. Materials used, labor employed and

overhead incurred during construction
B. Building permit or license
C. Architect fee
D. Superintendent fee
E. Cost of excavation
F. Cost of temporary building used as
construction offices and tools, or
materials shed
G. Expenditures incurred during the
construction period such as interest on
construction loan and insurance
H. Expenditures for service equipment and
fixtures made a permanent part of the
structure
MACHINERY ACCOUNT RETURNABLE CONTAINERS
COST WHEN PURCHASED a) Big units/ Great bulk – tanks, drums,

barrels. They are treated as PPE
a) Purchase price b) Small and individually small amount–
b) Freight, handling storage and other cost bottles, boxes. Treated as NON-
related to acquisition CURRENT ASSET
c) Insurance while in transit
d) Installation cost, including site Note: If not returnable, charged to expense.
preparation and assembling
e) Cost of testing and trial run and other
cost necessary in preparing machinery
for its intended use
f) Initial estimate of cost of dismantling
and removing the machinery and a.
restoring the site on which it is located,
and for which the entity has a present
obligation
g) Fee paid to consultants or advise on the
acquisitions of the machinery
h) Cost of safety rail and platform
surrounding the machine
i) cost of water device to keep machine
cool
TOOLS
 Machine tools – drills, punches

 Hand tools – hammer, saws
PATTERN AND DIES
Used for designing or forging out

product.
EQUIPMENT
a) Deliver equipment – cars, trucks, other

vehicles.
b) Store equipment – computer,
typewriters, adding machines, cash
register, calculator.
c) Office equipment – computer,
typewriters, adding machines, cash
register, calculator.
d) Furniture and fixtures – showcase,
counters, shelves, display fixtures,
cabinets, partitions, safes, desks, tables.

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Ppe Part 1 Notes

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PROPERTY, PLANT AND EQUIPMENT an entity to obtain the future economic benefit

from its other assets. This is considered as PPE.

Safety and Environmental Equipment. Do Spare parts, standby equipment and

COST OF BUILDING WHEN CONSTRUCTED

A. Materials used, labor employed and

COST WHEN PURCHASED a) Big units/ Great bulk – tanks, drums,

 Machine tools – drills, punches

PATTERN AND DIES

Used for designing or forging out

a) Deliver equipment – cars, trucks, other

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