2009

Land
Property, plant & equipment - Purchase price, commissions, legal fees
escrow fees, surveying fees
acquisition
Clearing and grading costs
Cost of removing unwanted structures
Assessments for water lines, sewers,
roads

PROF.B.RAMOS

Land Improvements
Property, plant & equipment

Landscaping
Tangible asset Paving parking lots
With a useful life of more than one On-property sidewalks
year Light structures (for parking and
sidewalks)
Used in business operations.
Fencing

Building
What Costs are Included in
If ready for use:
Acquisition Cost? Purchase price
Commissions, legal fees, escrow fees,
Purchase price reconditioning costs
Incidental cost If newly constructed by an outsider:
Contract Price
Restoration cost
Legal Fees
If self constructed:
Cost of materials,
Labor
Overhead

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Equipment
Purchase price
Taxes, freight, insurance during
shipping and installation
Special foundations or reinforcing of
floors
Reconditioning and testing costs
Note: Any expenditure incurred in preparing the
asset for its intended use is charged to
Equipment.
Acquisitions Other than Simple
Cash Transactions
Basket purchase
Deferred payment
Leasing
Exchange of nonmonetary assets
Acquisition by issuance of securities
Self-construction
Acquisition by donation or discovery
Acquisition of an asset with significant
restoration costs at retirement
Acquisition of an entire company
Methods of Acquisition
Leasing: A capital lease is economically the
same as a purchase.
The acquiring company records the asset
and liability at the present value of future
lease payments.
Exchange of nonmonetary assets: The new
asset is valued at its fair market value or at
the fair market value of the asset given up,
whichever is more clearly determinable.
2009
Methods of Acquisition
Issuance of securities: Record the asset at
the fair market value of the securities
issued.
Self-construction: Recorded at cost,
including all expenditures incurred to build
the asset and make it ready for its intended
use.
Interest Capitalization
When assets are acquired by self-
construction, interest incurred on funds
borrowed to finance construction can be
capitalized if the following conditions are
met:
Projects are discrete.
Costs are separately accumulated
Construction covers an extended period of time.
Construction costs are substantial.
Interest Capitalization
Interest charges begin when the first
expenditures are made on the project and
continue until the asset is completed.
Interest capitalization is calculated on
average amount of accumulated
expenditures.
Interest rate used is:
(1) actual rate on debt incurred specifically for the
project
(2) weighted average interest rate on all
borrowings not specifically for the project.
If the construction period covers more than
one fiscal period, accumulated expenditures
include prior years capitalized interest.
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Acquisition by Donation or
Discovery
Property acquired through donation
should be appraised and recorded at
its fair market value.
Land 400,000
Buildings 1,500,000
Revenue or
Gain 1,900,000
Asset with Significant
Restoration Costs at Retirement
Bryan Beach Company purchases and
erects an oil platform at a total cost of
P750,000.
Oil Platform 750,000
Cash 750,000
Asset with Significant
Restoration Costs at Retirement
The oil platform will be in use for 10 years,
at which time Bryan Beach is legally
obligated to ensure that the platform is
dismantled (at a cost of P100,000).
2009
Asset with Significant
Restoration Costs at Retirement
The oil platform will be in use for 10
years, at which time Bryan Beach is
legally obligated to ensure that the
platform is dismantled (at a cost of
P100,000).
Oil Platform 46,319
Asset Retirement
Obligation 46,319
Postacquisition Expenditures
Expenditures to keep plant and equipment
in good operating condition are referred to
as maintenance
Expenditures that do not extend the useful
life or increase future cash flows
Expense as
incurred
Postacquisition Expenditures
If the cost of the old component is known,
remove its cost and accumulated
depreciation.
Next, record cost of the new component and
recognize a gain or loss.
If the cost of the old component is not
known, then the cost of the new component
is deducted from accumulated depreciation.
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 2009

Valuation of Assets at Current

Values
In IFRS 16, concerns about permitting
upward revaluations of noncurrent
operating assets is reflected in the rules laid
out:
If a company revalues its noncurrent operating
assets to fair value, it must do so on a regular
basis and must revalue entire classes of assets
rather than just picking and choosing certain
assets.
Downward revaluations are recorded as a loss.
Upward revaluations are recorded as a debit to
the asset and a credit to a special revaluation
equity account.