Tangible Assets

Tangible Assets 

Physical Assets that a company 

• Holds for use in the production of goods, the supply of services, or for administrative purposes

• Is expected to use for more than one accounting period 

Property, plant and equipment

Tangible in Nature

They are physical assets, including both movable property (like machinery) and
immovable property (like buildings).

Used in Operations

They are actively used to produce goods, supply services, or for administrative
purposes. They are not investments held passively.

Not Held for Resale

Unlike inventory, these assets are acquired for use, not for sale in the ordinary course of
business.

Subject to Depreciation

Because these assets are used over multiple years, their cost is systematically allocated
as an expense over their useful life. This process is called depreciation.Depreciation
reflects the asset's consumption due to factors like: Wear and tear from use.
Obsolescence from technological changes. Aging or passage of time.

Property, Plant and Equipment

Land and Buildings 

(210) Land and Natural Resources 

(211) Buildings 

Property, Plant and Equipment

Plant & Machinery

(212) Technical Installations, Often grouped under machinery & equipment

(213) Machinery

(214) Tools (Molds and Templates 

(215) Other installations, Often called leasehold improvements if they are improvements to a rented space 

Property, Plant and Equipment 

Furniture & Equipment 

(216) Furniture & Fixtures 

(217) IT Equipment (Previously “Equipment for information processes” 

(218) Vehicles (Transportation Equipment)

Property, Plant, and Equipment

Other 

(219) Other tangible Assets 

Tangible Assets

NRV n2

Assets included in property, plant and Equipment will be valued at their cost, either their acquisition price or production cost

Formula for Acquisition price

Invoice amount (deducting commercial discounts) + expenses until it is ready for use + Financial assets + Financial Expenses + Present value of obligations for dismantling, removing or rehabilitation

Initial Value Calculation

The initial value of an asset is determined by its costs

Special Cases of Initial Value Calculation

• Capitalization of Borrowing costs

• Exchanges of assets

• Non-Cash Capital contributions 

Capitalization of borrowing costs

This refers to the process of adding interest expenses to the cost of an asset, rather than
treating them as a period expense. This is only permitted for qualifying assets, which are
assets that require a substantial period of time to get ready for their intended use (e.g.,
a building under construction).

Exchanges of Assets

This occurs when a company acquires an asset by trading another asset (a "swap"). The
accounting treatment depends on whether the exchange has commercial
substance—meaning the company's future cash flows are expected to change as a
result of the transaction.

Non-Cash Capital Contributions

This is when the company acquires an asset in exchange for issuing its own shares
(equity). The asset received must be valued at the fair value of the asset itself or the fair
value of the shares issued, whichever is more clearly determinable

Capitalization of financial expenses

For fixed assets that need a period of time longer than one year to be in
condition for use, the acquisition price or production cost must include the
financial expenses that have been incurred before the asset is ready for use
and that have been charged by the supplier or correspond to loans or other
types of external financing directly attributable to the acquisition or
manufacturing.

(23) PP&E in Progress 

(765) Capitalized Interest

Exchanges of Assets

Valuation determination ->
With Commercial Substance: The new asset is recorded at its fair value, and a gain or loss is recognized on the
exchange.
Without Commercial Substance: The new asset is recorded at the carrying amount (book value) of the asset
given up, and no gain or loss is recognized.

Classification of Exchanges: Commercial vs Non-Commercial Substance

An exchange of assets has commercial substance if the transaction is expected to cause a significant change in
the company's future cash flows. According to the PGC, an exchange has commercial substance if either of the
following conditions is met:
Change in Cash Flow Configuration: The risk, timing, and amount of the cash flows from the asset received are
significantly different from the cash flows of the asset given up.
Change in Entity-Specific Value: The present value of the company's post-tax cash flows changes as a result of
the exchange. This essentially means the economic position of the company is different after the swap.
If neither of these conditions is met, the exchange is considered to lack commercial substance, and the
accounting treatment is different (no gain or loss is recognized).

Commercial

Cost of Asset Received = Fair Value of Asset Given Up +- Cash Paid or Recieved

Non-Commercial

Cost of Asset Received = Carrying amount of asset given up +- Cash paid or received

Commercial

The starting point is the fair value of the asset you are giving up (plus or minus any cash).
▪ Ff the fair value of the asset you are receiving is more clearly evident or more reliable, you
should use that value instead. (The value recorded for the new asset can never exceed its
own fair value. You cannot record an asset for more than it is worth.)
▪ f the fair value of neither the asset received nor the asset given up can be measured
reliably, the transaction cannot be treated as commercial. In this case, you must follow the
rules for exchanges lacking commercial substance.

Non-Commercial

The recorded cost of the new asset cannot exceed its own fair value. If the calculation
above (Carrying Amount ± Cash) results in a value that is higher than the fair value of the
asset you are receiving, you must write down the value of the new asset to its fair value. This
difference is recognized immediately as an impairment loss in the income statement.

Non-Cash Capital Contributions

This occurs when a company acquires an asset not by paying cash, but by issuing its own shares (equity) to the
seller. Think of it as "buying" a building or machine and "paying" with a piece of the company itself

Validation Rule

According to the PGC, a tangible asset received as a non-cash capital contribution is valued at its fair value at
the date of the contribution. This rule is specified in NRV 17ª, "Transactions with share-based payments," which
aligns with international standards (IFRS 2). The logic is that the fair value of the asset received is the best measure
of the economic cost to the company for issuing its equity instruments

Non-Cash Capital Contributions Example

A new shareholder joins "Tech Solutions S.L." and, instead of
contributing cash, they provide a specialized server needed for the
company's operations. An independent appraiser determines the
fair value of the server is €30,000. In exchange, the company issues
2,000 new shares with a par value (valor nominal) of €10 per share.
Valuation
The server will be recorded on the balance sheet at its fair value of €30,000. The increase in
Capital Stock is the par value: 2,000 shares * €10/share = €20,000. The remaining amount is
recorded as Share Premium: €30,000 - €20,000 = €10,000.

Subsequent Measurement: General Rule

Carrying Amount = Historical Cost - Accumulated Depreciation - Impairment Losses

Subsequent Measurement: Renewals, Additions, and Improvements

Some subsequent expenditures are not expensed; instead, they are capitalized,
meaning they are added to the carrying amount of the asset. This is only done when
the expenditure is expected to enhance the asset's future economic benefits, for
example, by increasing its capacity, productivity, or extending its useful life. When a
part is replaced, the carrying amount of the old part that was substituted must be
derecognized (removed from the books)

Renewals/ Overhauls

Major repairs or replacements of components that restore the
asset to its original condition or efficiency.

Additions/ Expansions

Adding a new component or expanding the existing asset
(e.g., adding a new wing to a building).

Improvements

Replacing an existing component with a superior one that enhances
the asset's performance, efficiency, or output beyond its original specifications.

Subsequent Measurements: Repairs and Maintenance (NOT CAPITALIZED)

These are routine expenditures made to keep an asset in its normal operating condition. They
do not enhance the asset's capacity or extend its useful life. Therefore, the costs of repairs and
maintenance are expensed immediately.
They are recognized in the Income Statement (PyG) in the period they are incurred.

Repairs

Actions taken to restore an asset to working condition after a breakdown or damage.

Maitenance

Actions taken to keep an asset in good operating condition (e.g., routine
servicing, cleaning).

Subsequent Measurements: Major Overhauls or Inspections

The PGC requires a specific accounting treatment for major, periodic overhauls or inspections (e.g.,
a legally required aircraft inspection every five years). This is known as the component approach

Initial Recognition

When the asset is first acquired, the estimated cost of the first major overhaul is identified as a
separate component of the asset, even though the cash hasn't been spent yet. This component has
its own cost and useful life

Depreciation

This "overhaul component" is depreciated separately from the rest of the asset over the period
leading up to the scheduled inspection (e.g., over five years for a five-year inspection).

Performing the Overhaul

When the major overhaul is actually performed:
▪ The cost of the new overhaul is capitalized (added to the carrying amount of the asset) as a new
component. This new component will then be depreciated until the next overhaul.
▪ Any remaining carrying amount (book value) of the previous overhaul component must be
derecognized (written off to expenses).