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Understanding Property, Plant, & Equipment

This document defines property, plant, and equipment as tangible assets used in business operations for more than one year. Examples include land, buildings, machinery, vehicles, and equipment. PPE is recognized as an asset when future economic benefits are expected and cost can be reliably measured. Measurement is initially at cost, including purchase price and costs to prepare the asset for use. Direct costs like site preparation, delivery, and installation qualify for inclusion in the asset's cost. Costs for operations start-up, overhead, and relocations do not qualify.

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Marthy Dayag
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83 views1 page

Understanding Property, Plant, & Equipment

This document defines property, plant, and equipment as tangible assets used in business operations for more than one year. Examples include land, buildings, machinery, vehicles, and equipment. PPE is recognized as an asset when future economic benefits are expected and cost can be reliably measured. Measurement is initially at cost, including purchase price and costs to prepare the asset for use. Direct costs like site preparation, delivery, and installation qualify for inclusion in the asset's cost. Costs for operations start-up, overhead, and relocations do not qualify.

Uploaded by

Marthy Dayag
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

PROPERTY, PLANT, & EQUIPMENT

Tangible assets (with physical substance) that are held for use in production or supply of good or services (used in
business), for rental to others, or for administrative purposes, and are expected to be used during more than one period.
(more than one year)

o Land o Motor Vehicle Examples;

o Land Improvement o Furniture & Fixtures


o Building o Office Equipment
o Machinery o Patterns, Molds, & Dies
o Ship o Tools
o Aircraft o Bearer Plants
RECOGNITION OF PPE
 PPE is shall recognized as an asset = future economic benefits associated with asset will flow to the entity & cost
of asset can be measured reliably.

 SPARE PARTS AND SERVICINGEQUIPMENT – usually carried as inventory and recognized as an expense
when consumed.
 MAJOR SPARE PARTS AND STAND BYEQUIPMENT – qualify as PPE when the entity expects to use
them during more than one period.

MEASUREMENT OF RECOGNITION
 An item of PPE that qualifies for recognition as an asset shall be measured at cost.
 COST – is the amount of cash and cash equivalent paid and the fair value of other consideration given to acquire an
asset at the time acquisition or construction.

ELEMENTS OF COST
Purchase Price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
Costly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the
manner intended by management.
 Initial estimate of cost of dismantling and removing the item and restoring site on its location, the obligation of entity
occurs.

DIRECTLY ATRRIBUTABLE COST (qualify for recognition)


a. Cost of Employee benefits arising directly from acquisition of PPE.
b. Site preparation cost
c. Initial delivery and handling cost.
d. Installation and assembly cost.
e. Professional fees
f. Testing cost of an asset if functioning properly.

COST OF NOT QUALIFYING FOR RECOGNITION

a. Introducing new product or service, including advertising and promoting.


b. Conducting ne business in new location or new class of customer including cost of staff training.
c. Administration and other general overhead costs
d. Initial operating losses
e. Relocation or recognizing part or an entity’s operation.
f. Cost incurred while an item capable of operating in the manner intended by management has yet to
brought into use or is operated at less than full capacity.

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