Non-Current Assets - Ppe: Conceptual Framework & Accounting Standards

NON-CURRENT ASSETS Conceptual Framework &
- PPE Accounting Standards

IAS 16
Covers all aspects of accounting for property,
plant and equipment. This represents the bulk of
items which are “tangible” non-current assets.
Property, plant and equipment are tangible assets that:
-are held for use in the production or supply of goods or services, for rental to others , or for administrative purposes.
-are expected to be used during more than one period
Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to
acquire an asset at the time of its acquisition or construction.
Residual Value is the net amount which the entity expects to obtain for an asset at the end of its useful
life after deducting the expected costs of disposal.
Entity Specific Value is the present value of the cash flow an entity expects to arise from the
continuing use of an asset and from its disposal at the end of its useful life, or expects to incur when
settling a liability.
Carrying Amount is the amount at which an asset is recognized in the statement of financial position
after deducting any accumulated depreciation and accumulated impairment loss.
Impairment Loss is the amount by which the carrying amount of an assets exceeds its recoverable
amount.
EXAMPLES OF PPE
a) Land
b) Land Improvements
c) Building
d) Machinery
e) Ship
f) Aircraft
g) Motor vehicle
h) Furniture and fixtures
i) Office equipment
j) Patterns, molds and dies
k) Tools
l) Bearer Plants
RECOGNITION OF PPE
It is probable that the future economic benefits associated with the asset will
flow to the entity
The cost of the asset can be measured reliably
SPARE PARTS AND SERVICING
EQUIPMENT
- usually carried as inventory and recognized as an expense when consumed
- however, major spare parts and stand-by equipment qualify as PPE when
the entity expects to use them during more than one period.
MEASUREMENT AT
RECOGNITION
An item of PPE that qualifies for recognition shall be measured at cost.
ELEMENTS OF COST
a. Purchase price, including import duties and nonrefundable purchase taxes, after
deducting trade discounts and rebates
b. Cost directly attributable to bringing the assets to the location and condition
necessary for it to be capable of operating in the manner intended by management
c. Initial estimate of the cost of dismantling and removing the item and restoring the
site on which it is located , the obligation for which an entity incurs.
DIRECTLY ATTRIBUTABLE
COSTS
1. Costs of employee benefits arising directly from the acquisition of PPE
2. Cost of site preparation
3. Initial delivery and handling cost
4. Installation and assembly cost
5. Professional fees
6. Costs of testing whether the asset is functioning properly.
COSTS NOT QUALIFYING FOR
RECOGNITION
1. Costs of opening a new facility
2. Costs of introducing new product or service, including cost of advertising and
promotion
3. Costs of conducting business in a new location or with a new class of customer,
including costs of staff training
4. Administration and other general overhead costs
5. Costs incurred while an item capable of operating in the manner intended by
management has yet to be brought into use or is operated at less than full capacity
6. Initial operating losses
7. Costs of relocating or reorganizing part or all of an entity’s operations.
MEASUREMENT AFTER
RECOGNITION
After initial recognition, an entity shall chooses either the cost model or revaluation
model as the accounting policy for PPE.
The entity shall apply such acctg policy to an entire class of PPE
Cost Model – PPE are carried at cost less any accumulated depreciation and any
accumulated impairment loss.
Revaluation Model – PPE are carried at revalued carrying amount.
Revalued carrying amount is the fair value at the date of revaluation less any
subsequent accumulated depreciation and subsequent accumulated impairment loss.
ACQUISITION OF PROPERTY
Cash basis
On account subject to cash discount
Installment basis
Issuance of share capital
Issuance of bonds payable
Exchange
Donation
Government grant
Construction
DERECOGNITION
The cost of PPE together with the related accumulated depreciation shall be
removed from the accounts.
FULLY DEPRECIATED PROPERTY

The asset account and the related accumulated depreciation account are closed and
the residual value is set up in a separate account
PROPERTY CLASSIFIED AS
HELD FOR SALE
PFRS 5, paragraph 7, provides that an item of PPE is classified as held for sale if the
asset is available for immediate sale in the present condition within one year from
the date of classification as held for sale.
Such asset shall be excluded from the PPE but presented separately as current
asset.
PFRS 5, paragraph 15, further provides that an entity shall measure a noncurrent
asset classified as held for sale at the lower of carrying amount or fair value less cost
of disposal.
IDLE OR ABANDONED
PROPERTY
PFRS 5, paragraph 13, provides that an entity shall not classify as held for sale a
noncurrent asset that is to be abandoned.

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NON-CURRENT ASSETS Conceptual Framework &

- PPE Accounting Standards

FULLY DEPRECIATED PROPERTY

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