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Brgy. Mamatid, City of Cabuyao
Laguna 4025


Property, plant, and equipment are “tangible assets that are held for use in production or supply of goods or services, for rental to
others, or for administrative purposes, and are expected to be used during more than one period”.


An item property, plant and equipment shall be recognized as an asset when:
a. It is probable that future economic benefits associated with the asset will flow to the entity.
b. The cost of the asset can be measured reliably.
An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at cost.
Cost is the amount of cash or cash equivalent paid and the fair value of the other consideration given to acquire an asset at the time of
acquisition or construction.
Elements of Cost
a. Purchase price, including import duties and nonrefundable purchase taxes, after deducting trade discounts and rebates.
b. Cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the
manner intended by management.
c. Initial estimate of the cost dismantling and removing the item and restoring the site on which it is located, the obligation for
which an entity incurs.
Directly attributable costs
a. Cost of employee benefits arising directly from the construction or acquisition of the item of property, plant and equipment.
b. Cost of site preparation
c. Initial delivery and handling cost
d. Installation and assembly cost
e. Professional fee
f. Cost of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced
while bringing the asset to that location and condition, such as samples produced when testing equipment.
After the initial recognition, an entity shall choose either the cost model or revaluation model as the accounting policy for property,
plant and equipment.
COST MODEL= Cost less Accumulated Depreciation and Accumulated Impairment Loss
REVALUATION MODEL= Revalued Amount= FV at the Date of Revaluation less any subsequent Accumulated
Depreciation/Impairment Loss
1. Cash Basis
2. On account subject to cash discount
3. Installment basis
4. Issuance of share capital
5. Issuance of bonds Payable
6. Exchange
7. Donation
8. Government Grant
9. Construction
Acquisition on cash basis
Cash paid plus directly attributable costs such as freight, installation cost and other cost necessary in bringing the asset to the location
and condition for the intended use. If acquired at a “basket price” or “lump sum price”, it is necessary to apportion the single price
based on relative fair value.
Acquisition on account
Invoice price minus the discount, regardless of whether the discount is taken or not.
If the discount is not taken, the same is charged to purchase discount lost account which is shown as other expense.

Acquisition on installment basis

When the item of PPE is deferred beyond normal credit terms, the cost is the cash price equivalent.
The excess of installment price over the cash price is treated as an interest to be amortized over the credit period.
If there is no available cash price, the asset is recorded at an amount equal to present value of all payments using an implied interest

Issuance of share capital

a. Fair value of the property received

b. Fair value of the share capital
c. Par value or stated value of the share capital

Issuance of bonds payable

a. Fair value of the bonds payable

b. Fair value of asset received
c. Face value of bonds payable


The cost of an item of PPE acquired in exchange for a nonmonetary asset or a combination of monetary and nonmonetary asset is
measured at fair value, unless the exchange transaction lacks commercial substance of the fair value of neither the asset received nor
the asset given up is reliably measurable.

Exchange – no cash involved

a. Fair value of property given

b. Fair value of property received
c. Carrying amount of property given
Note that if the exchange has commercial substance and is measured at fair value, any gain or loss on the exchange is fully

Exchange – cash involved

a. Fair value of asset given plus cash payment – on the part of the payer.
b. Fair value of asset given minus the cash received – on the part of the recipient.
Exchange – no commercial substance
If the exchange lacks commercial substance, the acquired item of PPE is measured at the carrying amount of the asset given.
No gain or loss is recognized when the exchange lacks commercial substance.

Trade in
a. Fair value of asset given plus cash payment
b. Trade in value of asset given plus cash payment (in effect, this is the fair value of the asset received)
Trade in involves a non-dealer acquiring the asset from a dealer.
Trade in usually involves a significant amount of cash and therefore, the transaction has commercial substance.

Philippine GAAP provides that “contributions, including stock of an entity, received from shareholders shall be recorded at the fair
value of the items received, with the credit going to donated capital, if significant”.
Expenses incurred in connection with the donation, like payment of registration fees and legal fees shall be charged to the donated
capital account.
Philippine GAAP further provides that entities sometimes receive from non-shareholders gifts or grants of funds or other assets that
are restricted for PPE additions. Capital gifts or grants shall be recorded at their fair value when they are received or receivable.
When such items are received by entities, these are generally subsidies and therefore recognized as income.

a. Direct cost of materials
b. Direct cost of labor
c. Indirect cost and incremental overhead specifically identifiable or traceable to the construction.
If the incremental overhead is not specifically identifiable, allocation of overhead may be done on the basis of direct labor cost or
direct labor hours.
Saving or loss on construction
Where the actual cost of construction is less than the price at which the constructed asset can be purchased from outside parties, the
difference is not income but saving. This saving will be realized in future periods by reason of lower depreciation charges on the asset.
Any internal profit is eliminated in arriving at the cost of self-constructed asset.
Future periods shall not be burdened with management inefficiencies or errors.
Income and related expenses of incidental operations are recognized in profit or loss.
PPE is said to be fully depreciated asset if its carrying amount is equal to zero or to its residual value.

Property classified as held for sale

PFRS 5, paragraph 7, provides that an item of PPE is classified as “held for sale” if the asset is available for immediate sale in the
present condition within one year from the date of classification as held for sale.
Such asset shall be excluded from PPE but presented separately as current asset.
PFRS 5, paragraph 15, further provides that an entity shall measure a noncurrent asset classified as held for sale at the lower of
carrying amount or fair value less cost of disposal.
PFRS 5, paragraph 25, further provides that noncurrent asset classified as held for sale shall not be depreciated.

Idle or abandoned property

PFRS 5, paragraph 13, provides that an entity shall not classify as held for sale a noncurrent asset that is to be abandoned. This is
because the carrying amount would be recovered principally through continuing use.

Optional disclosures
a. The CA of temporarily idle PPE.
b. The gross CA of any fully depreciated PPE still in use.
c. The CA of PPE retired from active use and classified as held for sale.
d. When the cost model is used, the FV of PPE when this is materially different from CA.