Summary Ppe
Summary Ppe
Summary Ppe
SUMMARY
Property, plant, and equipment are also called fixed assets, meaning they are physical
assets that a company cannot easily liquidate or sell. PP&E assets fall under the
category of non-current assets, which are the long-term investments or assets of a
company. Non-current assets like PP&E have a useful life of more than one year, but
usually, they last for many years.
Acquisition:
It is tangible assets.
are used in business meaning used in production or supply of goods or
services, for rental purposes,
and for administrative purposes.
are expected to be used over a period of more than one year.
a.It is probable that future economic benefits associated with the asset will
flow to the entity.
Derecognition
The gain or loss shall be included in profit or loss when the item is derecognised
(unless IFRS 16 Leases requires otherwise on a sale and leaseback). Gains shall
not be classified as revenue.
However, an entity that, in the course of its ordinary activities, routinely sells
items of property, plant and equipment that it has held for rental to others shall
transfer such assets to inventories at their carrying amount when they cease to be
rented and become held for sale. The proceeds from the sale of such assets shall
be recognised as revenue in accordance with IFRS 15 Revenue from Contracts
with Customers. IFRS 5 does not apply when assets that are held for sale in the
ordinary course of business are transferred to inventories.
Measurement at recognition
PPE is measured at cost (Amount of cash or cash equivalent paid and the fair value of
the other consideration given to acquire the asset at the time of acquisition or
construction.
Measurement
Initial Measurement
Some items of property, plant and equipment might be necessary to acquire for safety
or environmental reasons. Although they do not directly increase the future economic
benefits, they might be inevitable to obtain future economic benefits from other assets
and therefore, should be recognized as an asset.
For example, water cleaning station might be necessary in order to proceed with some
chemical processes within chemical manufacturer.
An item of property, plant and equipment that qualifies for recognition as an asset
shall be measured at its cost.
The cost of an item of property, plant and equipment is the cash price equivalent at
the recognition date. If payment is deferred beyond normal credit terms, the
difference between the cash price equivalent and the total payment is recognized as
interest over the period of credit (unless such interest is capitalized in accordance with
IAS 23).
If an asset is acquired in exchange for another non-monetary asset, the cost will be
measured at the fair value unless:
If the acquired item is not measured at fair value, its cost is measured at the carrying
amount of the asset given up.
Subsequent Measurement
In such a case, an entity derecognizes carrying amount of older part and recognizes
the cost of new part into the carrying amount of the item. The same applies to major
inspections for faults, overhauling and similar items.
An entity may choose 2 accounting models for its property plant and equipment:
1. Cost model:
An entity shall carry an asset at its cost less any accumulated depreciation
and any accumulated impairment losses.
2. Revaluation model:
An entity shall carry an asset at a revalued amount. Revalued amount is its fair
value at the date of the revaluation less any subsequent accumulated depreciation and
subsequent accumulated impairment losses.
An entity shall revalue its assets with sufficient regularity so that the carrying amount
does not differ materially from its fair value at the end of the reporting period. If an
item of property, plant and equipment is revalued, the entire class of property, plant
and equipment to which that asset belongs shall be revalued.
The change of asset’s carrying amount as a result of revaluation shall be treated in the
following way:
Compensation from third parties for items of property, plant and equipment that were
impaired, lost or given up shall be included in profit or loss when the compensation
becomes receivable.
The items of property, plant and equipment are usually depreciated in order to
maintain matching principle – as they are in operation for more than 1 year, they
assist in producing the revenues in more than 1 year and therefore, their cost shall be
spread among those years in order to match the revenue they help to produce.
When dealing with the depreciation please do have 3 basic things in mind:
Depreciable amount: Depreciable amount is simply HOW MUCH you are going
to depreciate. It is the cost of an asset, or other amount substituted for cost, less
its residual value.
Depreciation period: Depreciation period is simply HOW LONG you are going
to depreciate and it is basically asset’s useful life.
Useful life is the period over which an asset is expected to be available for use by
an entity; or the number of production or similar units expected to be obtained
from the asset by an entity.
IFRS16 lists several factors that shall be considered when establishing item’s useful
life:
Depreciation method:
Depreciation method is simply HOW, IN WHAT MANNER you are going to
depreciate.
The depreciation method used shall reflect the pattern in which the asset’s future
economic benefits are expected to be consumed by the entity.
Disclosure:
An entity shall present and disclose information that enables users of the financial
statements about the entity’s investment in its property, plant and equipment and the
changes in such investment.
A) The financial statements shall disclose, for each class of property, plant and
equipment:
I. the measurement bases used for determining the gross carrying amount;
II.the depreciation methods used;
III.
the useful lives or the depreciation rates used;
IV.the gross carrying amount and the accumulated depreciation (aggregated with
accumulated impairment losses) at the beginning and end of the period; and
V. a reconciliation of the carrying amount at the beginning and end of the period
showing:
additions;
assets classified as held for sale or included in a disposal group
classified as held for sale and other disposals;
acquisitions through business combinations;
increases or decreases resulting from revaluations and from
impairment losses recognized or reversed in other comprehensive
income;
impairment losses recognized in profit or loss;
impairment losses reversed in profit or loss;
depreciation;
The net exchange differences arising on the translation of the
financial statements from the functional currency into a different
presentation currency, including the translation of a foreign
operation into the presentation currency of the reporting entity; and
other changes.
C) If items of property, plant and equipment are stated at revalued amounts, the
following shall be disclosed in addition to the disclosures required by IFRS 13
Fair Value Measurement:
Users of financial statements may also find the following information relevant to
their needs:
a. the carrying amount of temporarily idle property, plant and
equipment;
b. the gross carrying amount of any fully depreciated property, plant
and equipment that is still in use;
c. the carrying amount of property, plant and equipment retired from
active use and not classified as held for sale; and
d. when the cost model is used, the fair value of property, plant and
equipment when this is materially different from the carrying
amount.
Government assistance
The carrying amount of an item of property, plant and equipment may be reduced by
government grants in accordance with IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance.
Disposal:
When a company disposes of a PP&E asset, it removes it from the books and
recognizes any gain or loss on disposal. The gain or loss is determined by comparing
the disposal proceeds with the carrying amount of the asset.
1. Lauren Company had the following property acquisition during the current year:
SOLUTION:
Shares in exchange 60,000
Per share X 150
TOTAL 9,000,000
Land Received + 1,200,000
TOTAL cost of land P10,200,000
III. CONCLUSION