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Property, plant, and equipment are “tangible assets that are held for use in production or supply of goods or services, for rental to
others, or for administrative purposes, and are expected to be used during more than one period”.
When the item of PPE is deferred beyond normal credit terms, the cost is the cash price equivalent.
The excess of installment price over the cash price is treated as an interest to be amortized over the credit period.
If there is no available cash price, the asset is recorded at an amount equal to present value of all payments using an implied interest
rate.
Exchange
The cost of an item of PPE acquired in exchange for a nonmonetary asset or a combination of monetary and nonmonetary asset is
measured at fair value, unless the exchange transaction lacks commercial substance of the fair value of neither the asset received nor
the asset given up is reliably measurable.
Trade in
a. Fair value of asset given plus cash payment
b. Trade in value of asset given plus cash payment (in effect, this is the fair value of the asset received)
Trade in involves a non-dealer acquiring the asset from a dealer.
Trade in usually involves a significant amount of cash and therefore, the transaction has commercial substance.
Donation
Philippine GAAP provides that “contributions, including stock of an entity, received from shareholders shall be recorded at the fair
value of the items received, with the credit going to donated capital, if significant”.
Expenses incurred in connection with the donation, like payment of registration fees and legal fees shall be charged to the donated
capital account.
Philippine GAAP further provides that entities sometimes receive from non-shareholders gifts or grants of funds or other assets that
are restricted for PPE additions. Capital gifts or grants shall be recorded at their fair value when they are received or receivable.
When such items are received by entities, these are generally subsidies and therefore recognized as income.
Construction
a. Direct cost of materials
b. Direct cost of labor
c. Indirect cost and incremental overhead specifically identifiable or traceable to the construction.
If the incremental overhead is not specifically identifiable, allocation of overhead may be done on the basis of direct labor cost or
direct labor hours.
Saving or loss on construction
Where the actual cost of construction is less than the price at which the constructed asset can be purchased from outside parties, the
difference is not income but saving. This saving will be realized in future periods by reason of lower depreciation charges on the asset.
Any internal profit is eliminated in arriving at the cost of self-constructed asset.
Future periods shall not be burdened with management inefficiencies or errors.
Income and related expenses of incidental operations are recognized in profit or loss.
PPE is said to be fully depreciated asset if its carrying amount is equal to zero or to its residual value.
Optional disclosures
a. The CA of temporarily idle PPE.
b. The gross CA of any fully depreciated PPE still in use.
c. The CA of PPE retired from active use and classified as held for sale.
d. When the cost model is used, the FV of PPE when this is materially different from CA.