CHAPTER 10 PPE

PPE

-tangible, held for production, services, administratives purposes

-long term

PPE Recognition

-meets definition

-meets criteria for asset

-capitalization threshold of 50,000

Semi Expandable Property

below capitalization threshold

PPE initial measurement

At cost that includes:

-purchase price

-direct cost

-present value of decommissioning and restoration costs

Decommissioning cost

refer to the cost of dismantling or uninstalling a PPE to end its useful life

Acquisition oby Purchase

classified as capital outlays

Cash discount

-excluded in PPE measurement

-includes in OTHER LOSSES

PPE under installment basis

-measured at cash price equivalent

-amortized as interest expense over the credit term

Promotional items

-if same , cost is allocated to all the items aquired including promotional items

-if different, cost is measured at fair value and allocated in other asset

Relative fair values

• used when PPE is acquired in lump sum

• allocate by proportion

Acquisition by Construction

• acquired through construction is classified as capital outlays

• cost during construction is “construction in progress”

Acquisition through Construction Contracts awarded

cost is contact price stipulated

Construction by Administration

• self construction

• cost are direct and overheads

• all wasted materials are expensed

Acquisition through exchange

• exchange transaction has commercial or not

• with commercial substance , if cash flows change due to exchange : asset are measured by fair value given up, fair value reciened, CA of asset given up

• without commercial substance are measured by CA asset givem up only

Acquisition through non-exchange transaction

• donation or grants

• measured at fair value

• without conditions are income

• with condition are libility before income

Acquisition through intra and inter-agency transfers

• acquired intra and inter transfer

• measured at CA of the asset recieved

Acquisition through finance lease

• acquired through lease

Subsequent expenditures om PPE

• repairs and maintenance

• minor repairs are cost of day to day operation

• major repairs are for betterments

• replacement cost

• spare parts and servicing equipment

• betterments are enhancement

• additions

• rearrangements-relocation or reinstallation of an asset

Cost model

• PPE Used to measure its cost

• Depreciation, Depreciable amount, Residual value

PPE guidelines

• use of straight line method

• depreciation does not cease if asset become idle

• rsdidual value are 5%

• useful life and residual shall be reviewd annually

• depreciation is monthly basis

Impairment

if CA exceed recoverable value

Computation of value in use

• depreciated replacement cost approuch

• restoration cost approach

• service unit approach-value equal to the asset minus the service impaired

Heritage asset

• measured at cost

• not depriciated

• recorded in registry of heritage asset

infrastructure assets

• part of system or network

• immovable

• no residual value

Derecognition

PPE is disposed or no benefit expected from the asset

Property Card

• used by the supply division to record all movements in items of PPE

borrowing cost

• expenses incurred by an entity in connection with the borrowing of funds

Borrowing costs recognition

• Benchmark treatment

• Allowed alternative treatment