PROPERTY, PLANT, & EQUIPMENT WITH GOVERNMENT GRANT
It is a tangible assets
A PPE is:
used in production, supply, services, or administrative purposes
rental to others
expected to be used more than a period
Cost of PPE differs depends on transaction, and it could be:
Cash
Cash Equivalents paid
A. Issuance of Shares (equity securities)
B. Issuance of Bonds (debt securities)
Fair Value of Other Consideration/Surrender/Exchange to Acquire Asset
Present Value of Cash Installment
Self-Constructed Asset
Other Cost of PPE to be Considered:
Income while bringing the asset to the intended location and condition
A. In May 2020, IAS 16 – any proceeds item/product produced from testing that PPE should no
longer required to deduct from the cost of PPE, instead, to be recognized in profit or loss
B. The difference between cash equivalent and lump sum of monthly installments are presented as
interest expense.
C. If cash is not explicitly stated, PV of that asset should be considered
Entity-Specific Value – it based on estimation, a cash flow to arise from future
To compute future cash flow, we should measure at Present Value of future (projected) cash flow
Recognition – it is recognized as which the asset is measure at its cost
Costs include in valuation of PPE:
A. Purchase Price
B. Directly Attributable Costs
a. Employee Benefits
b. Site Preparation
c. Freight Charges
d. Installation & Professional Fees
e. Testing
C. Costs of Dismantling and Removing
Costs that should be expensed:
A. Opening a new facility
B. Introducing a new product (should be advertising)
C. Conducting business in new location/re-locating
D. Administration and overhead costs
E. Incurred when machine is operating under intended manner
Measurement of Cost
Priorities in issuance of shares to acquire asset (PPE):
A. First – Fair Value of Asset, if not;
B. Second – Fair Value of Shares, otherwise;
C. Third – Par Value of Shares
Priorities in issuance of bonds to acquire asset (PPE):
A. First – Fair Value of bonds, if not;
B. Second – Fair Value of Asset, otherwise;
C. Third – Face Value of Bonds Payable
It includes the costs incurred other than the assets acquired
Any amount received/given (as an additional) from the assets exchanged is deducted from the fair value
of asset, otherwise, it is added to the fair value of asset.
A. Surrendered/exchanged asset is recorded at its costs (e.g. Dr – New Equipt. P100,000, Dr –
Accu. Depr. P400,000; Cr – Old Equipment P500,000)
If the cash price of asset is available, initial measurement of that asset is measured at that price
regardless of its acquisition method.
GOVERNMENT GRANT
Grant related to assets is a fund or grant that covers the asset for acquisition or construction
Grant related to income is a fund or grant that came from the government on behalf of the expenditures
incurred by the firm for its operation
Types of Government Grant:
1. Specific Grant – a grant that are for specific period or operation
2. Grant Related to Depreciable Assets –
If we received a P5,000,000 grant for an asset that have a estimated life of 5 years
Presentation of income arises from a government grant is allotted from the estimated life of
that asset, thus, Dr – Cash P1,000,000; Cr – Unearned Revenue P1,000,000.
Presentation of revenue at the end of the year Dr – Unearned Revenue P200,000; Cr –
Government Grant Income P200,000
3. Grant Related to Non-Depreciable Assets –
4. Grant
If the condition is not met, the grant should be repaid to the government
1. First is presenting the unamortized cost (or the unearned income from the grant)
Dr – Unearned Revenue ###, Dr - Loss on Government Grant ###; Cr – Cash ###
