INITIAL MEASUREMENT OF PPE Recognition of costs in the carrying amount of an item of property,

plant and equipment ceases when the item is in the location

I. Definitions and condition necessary for it to be capable of operating in the
manner intended by management. Therefore, costs incurred in using
or redeploying an item are not included in the carrying amount of that
Cost Amount of cash or cash equivalents paid or the
item. For example, the following costs are not included in the
fair value of the other consideration given to
carrying amount of an item of property, plant and equipment:
acquire an asset at the time of its acquisition or
construction or, where applicable, the amount
(a) Costs incurred while an item capable of operating in the
attributed to that asset when initially recognized
manner intended by management has yet to be brought into
in accordance with the specific requirements of
use or is operated at less than full capacity
other PFRS.
(b) Initial operating losses, such as those incurred while
demand for the item’s output builds up
Entity-specific Present value of the cash flows an entity expects
(c) Costs of relocating or reorganizing part or all of an entity’s
value to arise from the continuing use of an asset and
operations.
from its disposal at the end of its useful life or
expects to incur when settling a liability.
Measurement of Cost
Property, plant and equipment are tangible items that: Measurements with an order of priority to be followed:
(a) Are held for use in the production or supply of goods or
services, for rental to others, or for administrative purposes; Issuance of Issuance of Exchange Transaction
and
Shares Bonds with difference in Cash
(b) Are expected to be used during more than one period. Flows
1 st
FV of Asset FV of Bonds FV of Asset Given
Recognition
2 nd
FV of Shares FV of Asset FV of Asset Received
Items of property, plant, and equipment should be recognized as
3 rd
Par value of Face value of BV of Asset Given
assets when it is probable that:
Shares BP
● The future economic benefits associated with the asset
will flow to the enterprise; and
Assets acquired by an exchange transaction shall be adjusted
● The cost of the asset can be measured reliably.
for the amount of cash paid or received.
Measurement at Recognition - An item of property, plant and
Measurements that use the cash price or its equivalent
equipment that qualifies for recognition, as an asset shall be
measured at its cost.
Acquired though short Cost should be net of the discount
Elements of Cost term credit - regardless whether taken or not.
Acquired through long Present value of the deferred
The cost of an item of property, plant and equipment comprises: term financing - payment or the installments

(a) Its purchase price, including import duties and Measurements at fair value of the asset received only
non-refundable purchase taxes, after deducting trade
discounts and rebates. Asset donated by a Recorded at the fair value of the
(b) Any costs directly attributable to bringing the asset to shareholder - asset. An equity account “Donated
the location and condition necessary for it to be capable of Capital” shall be credited which is
operating in the manner intended by management. part of share premium. However,
(c) The initial estimate of the costs of dismantling and cost incurred to transfer the title
removing the item and restoring the site on which it is paid by the recipient shall not be
located, the obligation for which an entity incurs either capitalized, instead debited from
when the item is acquired or as a consequence of having Donated Capital.
used the item during a particular period for purposes other Asset from a Also recorded at fair value. Income
than to produce inventories during that period. government grant - shall be credited if there are no
conditions attached and cost
Examples of directly attributable costs are: incurred to transfer the title shall be
recognized as an expense.
(a) Costs of employee benefits arising directly from the
construction or acquisition of the item of property, plant and Other measurement considerations
equipment
(b) Costs of site preparation Self Constructed asset - Includes the cost of materials,
(c) Initial delivery and handling costs direct labor and overhead
(d) Installation and assembly costs specifically attributable to the
(e) Costs of testing whether the asset is functioning properly, construction. Savings from the
after deducting the net proceeds from selling any items construction, meaning lower total
produced while bringing the asset to that location and cost compared if the assets was
condition (such as samples produced when testing purchased are not included in the
equipment) cost and shall not be recognized as
(f) Professional fees income.
Exchange transactions This term “lacks commercial
Examples of costs that are not costs of an item of property, plant that lacks commercial substance” applies if an both assets
and equipment and should be expensed: substance - from the exchange represents a
configuration (RISK, TIMING AND
(a) Costs of opening a new facility AMOUNT) of cash flows that does
(b) Costs of introducing a new product or service (including not differ from each other.
costs of advertising and promotional activities) Therefore the transaction shall be
(c) Costs of conducting business in a new location or with a accounted for in a manner that no
new class of customer (including costs of staff training) exchange occurred and shall be
(d) Administration and other general overhead costs. measured at book value of the
asset given with NO “gain or loss”
to be recognized.
 GOVERNMENT GRANTS AND GOVERNMENT ASSISTANCE
b. Two methods of presentation in financial statements of
Definitions grants (or the appropriate portions of grants) related to
assets are regarded as acceptable alternatives.
Government Action by government designed to provide an
assistance economic benefit specific to an entity or c. One method sets up the grant as deferred income which is
range of entities qualifying under certain recognized as income on a systematic and rational basis
criteria. Government assistance for the over the useful life of the asset.
purpose of this Standard does not include d. The other method deducts the grant in arriving at the
benefits provided only indirectly through carrying amount of the asset. The grant is recognized as
action affecting general trading conditions, income over the life of a depreciable asset by way of a
such as the provision of infrastructure in reduced depreciation charge.
development areas or the imposition of
trading constraints on competitors. e. The purchase of assets and the receipt of related grants
can cause major movements in the cash flow of an entity.
Government Assistance by government in the form of For this reason and in order to show the gross investment
grants transfers of resources to an entity in return in assets, such movements are often disclosed as separate
for past or future compliance with certain items in the cash flow statement regardless of whether or
conditions relating to the operating activities not the grant is deducted from the related asset for the
of the entity. They exclude those forms of purpose of balance sheet presentation.
government assistance which cannot
reasonably have a value placed upon them Presentation of Grants Related to Income
and transactions with government which
cannot be distinguished from the normal a. Grants related to income are sometimes presented as a
trading transactions of the entity. credit in the income statement, either separately or under
a general heading such as “Other income”; alternatively,
Grants related to Government grants whose primary condition they are deducted in reporting the related expense.
assets is that an entity qualifying for them should
purchase, construct or otherwise b. Supporters of the first method claim that it is inappropriate
acquire long-term assets. Subsidiary to net income and expense items and that separation of
conditions may also be attached restricting the grant from the expense facilitates comparison with
the type or location of the assets or the other expenses not affected by a grant. For the second
periods during which they are to be acquired method it is argued that the expenses might well not have
or held. been incurred by the entity if the grant had not been
available and presentation of the expense without
Grants related to Government grants OTHER than those offsetting the grant may therefore be misleading.
income related to assets.
c. Both methods are regarded as acceptable for the
Government Grants, including non-monetary grants at fair presentation of grants related to income. Disclosure of the
value, shall not be recognized until there is reasonable grant may be necessary for a proper understanding of the
assurance that: financial statements. Disclosure of the effect of the grants
on any item of income or expense, which is required to be
(a) The entity will comply with the conditions separately disclosed, is usually appropriate.
attaching to them; and
Repayment of Government Grant
(b) The grants will be received.
a. If a grant becomes repayable, it should be treated as a
There are four types of significant government grants that will
require the following treatment: change in estimate.
b. If the grant is recorded as a deferred income, the
1. Grants for the purpose of specific expenses – This should
be deferred and recognized as income in the same period as repayment should be applied first against any related
the relevant expense.
unamortized deferred income (the balance of the deferred
2. Grants related to depreciable assets are usually income), and the difference shall be recognized as expense.
recognized as income over the periods and in the
c. Where the original grant related to an asset, the repayment
proportions in which depreciation on those assets is
charged. Either by deducting the grant from the cost of the should be treated as increasing the carrying amount of the
asset or as deferred income.
asset or reducing the deferred income balance.
3. Grants related to non-depreciable assets may also require d. The cumulative depreciation which would have been
the fulfillment of certain obligations and would then be
charged had the grant not been received should be charged
recognized as income over the periods which bear the cost
of meeting the obligations. As an example, a grant of land as depreciation expense.
may be conditional upon the erection of a building on the
site and it may be appropriate to recognize it as income
END
over the life of the building.

4. A government grant that becomes receivable as

compensation for expenses or losses already incurred
or for the purpose of giving immediate financial support to
the entity with no future related costs shall be recognized as
income of the period in which it becomes receivable.

Presentation of Grants Related to Assets

a. Government grants related to assets, including

non-monetary grants at fair value, shall be
presented in the statement of financial position
either by setting up the grant as deferred income or
by deducting the grant in arriving at the carrying
amount of the asset.