CHAPTER 15: PROPERTY, PLANT & The cost of an item of property, plant and

EQUIPMENT (PAS 16) equipment comprises:

a. Purchase price, including import duties and
PROPERTY, PLANT AND EQUIPMENT
nonrefundable purchase taxes, after deducting
Property, plant and equipment are tangible assets discounts and rebates
that are held for use in production or supply of
b. Cost directly attributable to bringing the asset
goods or services, for rental to others, or for
to the location and condition for the intended use
administrative purposes, and are expected to be
used during more than one period. c. Initial estimate of the cost of dismantling
and removing the item for which the entity has a
Accordingly, the major characteristics in the
present obligation.
definition of property, plant and equipment are:
Directly attributable costs
a. The property, plant and equipment are
tangible assets, meaning with physical Examples of directly attributable costs that
substance. qualify for capitalization as cost of the asset
include:
b. The property, plant and equipment are used in
business, meaning used in production or supply a. Cost of site preparation
of goods or services, for rental purposes and for b. Initial delivery and handling cost
administrative purposes. c. Installation and assembly cost
d. Professional fee
c. The property, plant and equipment are
e. Costs of testing whether the asset is
expected to be used over a period of more than
functioning properly.
one year.
Examples of property, plant and equipment
Acquisition Cost
1. Land
2. Land improvements a. Acquisition on a cash basis (cash)
3. Building
 The cost of an item of property, plant and
4. Machinery
equipment is the cash price equivalent at the
5. Ship
recognition date.
6. Aircraft
7. Motor vehicle  The cost of asset acquired on a cash basis
8. Furniture and fixtures simply includes the cash paid plus directly
9. Office equipment attributable costs such as freight, installation
10. Patterns, molds and dies cost and other cost necessary in bringing the
11. Tools asset to the location and condition for the
12. Bearer plants intended use.
A. INITIAL MEASUREMENT
b. Acquisition on account (accounts payable)
An item of property, plant and equipment that
qualifies for recognition as an asset shall be  When an asset is acquired on account subject
measured at cost. Cost is the amount of cash or to a cash discount, the cost of the asset is equal
cash equivalent paid, and the fair value of the to the invoice price minus the discount,
other consideration given to acquire an asset at regardless of whether the discount is taken or
the time of acquisition or construction. not. Cash discounts are generally considered as
reduction of cost and not as income.
Elements of cost
c. Acquisition on installment basis (long term for a nonmonetary asset or a combination of
finances – notes, loans, etc.) monetary and nonmonetary asset is measured at
fair value plus any cash payment.
 When payment for item of property, plant and
equipment is deferred beyond normal credit  However, the exchange is recognized at
terms, the cost is the cash price equivalent. carrying amount if the exchange transaction
lacks commercial substance.
 In other words, if an asset is offered at a cash
price and at an installment price and is Definition of commercial substance
purchased at the installment price, the asset shall
Commercial substance is a new notion and is
be recorded at the cash price.
defined as the event or transaction causing the
 The excess of the installment price over the cash flows of the entity to change significantly
cash price is treated as an interest to be by reason of the exchange.
amortized over the credit period.
B. SUBSEQUENT MEASUREMENT
d. Issuance of share capital
 After initial recognition, an entity shall
Philippine GAAP provides that if shares are choose either the cost model or the
issued for consideration other than actual cash, revaluation model as the accounting policy for
the proceeds shall be measured by the fair value property, plant and equipment.
of the consideration received.
 The entity shall apply such accounting policy
Accordingly, where a property is acquired to an entire class of property, plant and
through the issuance of share capital, the equipment.
property shall be measured at an amount equal
 The cost model means that property, plant
to the following in the order of priority:
and equipment are carried at cost less any
a. Fair value of the property received (asset accumulated depreciation and any accumulated
received) impairment loss.
b. Fair value of the share capital (issued)
 The revaluation model means that property,
c. Par value or stated value of the share capital
plant and equipment are carried at revalued
(issued)
carrying amount.
e. Issuance of bonds payable  The revalued carrying amount is the fair value
PFRS 9, paragraph 5.1.1. provides the asset at the date of revaluation less any subsequent
acquired by issuing bonds payable is measured accumulated depreciation and subsequent
in the following order: accumulated impairment loss.
a. Fair value of bonds payable (PV of bonds) Derecognition
b. Fair value of asset received
c. Face amount of bonds payable  Derecognition means that the cost of the
property, plant and equipment together with the
related accumulated depreciation shall be
Exchange removed from the statement of financial
position.
 PAS 16, paragraph 24, provides that the cost
of an item of property, plant and equipment  PAS 16, paragraph 67, provides that the
acquired in exchange carrying amount of an item of property, plant
and equipment shall be
derecognized on disposal or when no future c. Technical or commercial obsolescence
economic benefits are expected from the use or d. Legal limit for the use of the asset, such as the
disposal. expiry date of the related lease.
 The gain or loss arising from the
derecognition of an item of property, plant and Depreciation method
equipment shall be determined as the difference
The depreciation method shall reflect the
between the net disposal proceeds and the
pattern in which the future economic benefits
carrying amount of the item.
from the asset are expected to be consumed by
Concept of depreciation the entity. A variety of depreciation methods can
be used.
 Depreciation is defined as the systematic
allocation of the depreciable amount of an asset Straight line method
over the useful life.
Under the straight-line method, the annual
 Depreciation is a matter of cost allocation in depreciation charge is calculated by allocating
recognition of the exhaustion of the useful life of the depreciable amount equally over the number
an item of property, plant and equipment. of years of useful life.
 Depreciation ceases when the asset is Production method
derecognized.
The production or output method assumes that
 Therefore, depreciation does not cease when depreciation is more a function of use rather
the asset becomes idle temporarily. than passage of time.
Factors of depreciation The useful life of the asset is considered in terms
of the output it produces or the number of
 Depreciable amount is the cost of an asset or
hours it works.
other amount substituted for cost, less the
residual value. Thus, depreciation is related to the estimated
production capability of the asset and is
 Residual value is the estimated net amount
expressed in a rate per unit of output or per
currently obtainable if the asset is at the end of
hour of use.
the useful life.
Diminishing balance or accelerated methods
The residual value of an asset shall be reviewed
at least at each financial year-end and if The diminishing balance or accelerated methods
expectation differs from previous estimate, the provide higher depreciation in the earlier years
change shall be accounted for as a change in an and lower depreciation in the later years of the
accounting estimate. useful life of the asset. Thus, these methods
result in a decreasing depreciation charge over
Useful life is either the period over which an
the useful life.
asset is expected to be available for use by the
entity, or the number of production or similar The accelerated methods include sum of years'
units expected to be obtained from the asset by digits method and double declining balance
the entity. method.
The factors in determining useful life are:
a. Expected usage of the asset
b. Expected physical wear and tear
CHAPTER 16: GOVERNMENT GRANT This means that the government grant is
(PAS 20) recognized as income as the entity recognizes as
expense the related cost for which the grant is
Government grant
intended to compensate.
- PAS 20, paragraph 3, defines government as
a) Grant is recognition of specific
assistance by the government in the form of
expenses that shall be recognized as
the transfer of resources to an entity. In return
income over the period of the related
for part or future compliance with certain
expense. (recognized as deferred
conditions relating to the operating activities
income initially.)
of the entity.
b) Grant that becomes receivable as
It is a donation from the government. Meron compensation for expenses or losses
ditong kapalit. already incurred or for the purpose of
giving immediate financial support to
RECOGNITION: the entity with no further related cost
Government grant shall be recognized when shall be recognized as income of the
there is reasonable assurance that: period in which it becomes receivable
c) Grant related to depreciable asset
a) The entity will comply with the shall be recognized as income over
conditions of the grant. the periods and in proportion to the
b) The grant will be received. depreciation of the related assets.
(recognized as deferred income
Difference between government grants and
initially)
government assistance. Government assistance
d) d.) Grant related to non-depreciable
broader term for grants, loans, subsidies, and
(land) assets requiring fulfillment of
welfare programs to help people or businesses. It
certain conditions shall be recognized
is not about receiving money at also about
as income over the periods that bear
services or benefits like transportation.
the cost of meeting the conditions.
Example of Government Grants:
PRESENTATION OF GOVERNMENT
a) Received cash, land, or other NCA GRANT
from the government subject to
1. Government grants related to asset
compliance with certain conditions.
b) Receipt of financial aid in case of  grants whose primary condition is that
loss from a calamity an entity qualifying for them should
c) Forgiveness of an existing loan from purchase, construct, or otherwise acquire
the government long-term assets.
d) Benefit of a government loan with a
below-market rate of interest  Shall be presented in the statement of
financial position in two ways:
Deferred grant income- nakakareceive kana ng
cash pero wala pa yung condition. a) By setting the grant as
deferred income.
Accounting for Government Grant b) By deducting the grant in
arriving at the carrying
The main concept in accounting for government
amount of the asset.
grants is the MATCHING CONCEPT.
2. Government grant related to income:
  Grants other than those related to assets. forms of government assistance from
which the entity has directly
 Presented in the income statement,
benefited.
either:
c) Unfulfilled conditions and other
a) separately or under the general contingencies attach to government
heading “other income” assistance that have been recognized.
b) deducted from the related expense.
NOTE: It is not required to disclose the name
of the government agency that gave the grant
along with the date of sanction of the grant by
GOVERNMENT ASSISTANCE such government agency and the date when cash
It is an action by the government designed to was received in case of monetary grant.
provide an economic benefit specific to an
entity or range of entities qualifying under
certain criteria. The essence of government
assistance is that no value can reasonably be
placed upon it.
Examples of government assistance are:
a) Free technical or marketing advice
b) Provision of guarantee
c) Government procurement policy that
is responsible for a portion of the
entity’s sales.
Government assistance does not include the
following indirect benefits or benefits not
specific to an entity:
a) Infrastructure in development areas
such as improvement to the general
transport and communication
network.
b) Imposition of trading constraints on
competitors
c) Improved facilities such as irrigation
for the benefit of an entire local
community.
DISCLOSURES ABOUT GOVERNMENT
GRANT
a) The accounting policy adopted for
government grants, including the
method of presentation adopted in the
financial statements.
b) The nature and extent of government
grants recognized in the financial
statements and an indication of other
CHAPTER 17: BORROWING COST (PAS The borrowing cost incurred in connection with
23) the acquisition of a qualifying asset should be
capitalized as (an avoidable cost) of the
Borrowing Cost
qualifying asset.
 Borrowing costs that are directly
Excluded from capitalization (not a
attributable to the acquisition,
qualifying asset)
construction, or production of a
quantifying asset form part of the cost a) Asset measured at fair value, such as
of that asset. Other borrowing costs are Biological Asset (Assets na merong
recognized as an expense. buhay like plants and animals)
b) Inventory that is manufactured in
 It is defined as interest and other costs
large quantities on a repetitive basis,
that an entity incurs in with borrowing
such as maturing whisky, even if it
of funds.
takes a substantial period of time to
 Pag nangutang ka, yung mga nag get ready for sale. (Normal mong
pautang may hinihingin kapalit which is ibenebenta, repetitive in nature)
interest and other cost c) An asset that is ready for the
intended use or sale when acquired.
 Borrowing can be classified as
Borrowing and General Borrowing Commencement of capitalization (beginning
or start)
a) Borrowing- is intended specifically
to acquire a qualifying asset -The capitalization of borrowing costs as part of
b) General Borrowing- is intended the cost of a qualifying asset shall commence
partly to acquire qualifying assets when the following
and partly for general or working
three conditions are present:
capital purposes.
a. When the entity incurs
Qualifying Asset
expenditures for the asset.
 Is an asset that necessarily takes a (need ng actual expenses)
substantial period of time to get ready b. When the entity incurs
for the intended use or sale of time. borrowing costs.
c. When the entity undertakes
 Asset na hindi pa ready at very moment activities that are necessary to
but rather nag p prepare pa siya para prepare the asset for the
maging asset intended use or sale. (like yung
 Yung preparation niya para maging asset nag prepare ng plano, inaayos
ay matagal yung legal documents or
physical activities)
Cessation of capitalization (pag tigil)
Circumstances of the following may be
qualifying assets: -Capitalization of borrowing costs shall cease
when substantially all the activities necessary
a) Manufacturing Plants to prepare the qualifying asset for the intended
b) Power generation facilities use or sale are complete.
c) Intangible assets
d) Investment Properties
Accounting for borrowing cost period multiplied by a capitalization
rate or average interest rate.
-mandates the following rules on borrowing
costs:  However, the capitalizable borrowing
cost shall not exceed the actual interest
1. If the borrowing is directly attributable to the
incurred.
acquisition, construction, or production of a
qualifying asset, the borrowing cost is required  The capitalization rate or average
to be capitalized as the cost of the asset. interest rate is equal to the total annual
borrowing cost divided by the total
2. All other borrowing costs shall be expensed
general borrowings outstanding during
as incurred.
the period.
Asset financed by specific borrowing
 No specific guidance is provided for
(nangutang ka para sa specific purpose of the
general borrowing with respect to
construction, directly yung effect)
investment income. Accordingly, any
 If the funds are borrowed specifically
investment income from general borrowing is
for the purpose of acquiring a qualifying
not deducted from capitalizable borrowing
asset, the amount of capitalizable
costs.
borrowing cost is the actual
borrowing cost incurred during the  Qualifying assets financed through
period less any investment income General borrowing
from the temporary investment of
those borrowings.
Total interest expense on
 Qualifying assets financed through
Specific borrowing: general borrowings ₱xx
Divide by: Total general borrowings xx
Interest expense on specific borrowing ₱ xx Equal Capitalization rate %
Less: Investment income
earned on specific borrowing xx Average expenditure on the asset ₱xx
Equal Borrowing cost eligible for Multiply by: Capitalization rate %
Capitalization ₱ xx Equal Borrowing costs that may
be eligible for capitalization ₱xx
Asset financed by general borrowing (yung
entity maraming utang and hindi niya ina
identify yung specific purpose. Para sa lahat) The amount computed in the formula above
shall be compared with the actual borrowing
 - if the funds are borrowed generally and costs incurred during the
used for acquiring a qualifying asset, the
amount of capitalizable borrowing period. The amount to be capitalized is the lower
cost is equal to the average carrying amount.
expenditures on the asset during the
Disclosures related to borrowing costs
a. The amount of borrowing costs capitalized
during the period.

b. The capitalization rate used to determine the

amount of borrowing costs eligible for
capitalization.

Segregation of assets that are "qualifying assets"

from other assets in the statement of financial
position is not
required to be disclosed.
CHAPTER 18: INVESTMENT IN decreased by the investor's share of the loss of
ASSOCIATES (PAS 28) the investee.
DEFINITION OF TERMS The investor's share of the profit or loss of the
investee is recognized as investment income.
ASSOCIATE - an entity over which the
investor has significant influence. c. Dividends received from an equity investee
reduce the carrying amount of the investment.
Isang tao na bahagi sa association, kaya siya
bahagi kase may influence siya sa association d. Note that the investment must be in
ordinary shares.
SIGNIFICANT INFLUENCE
If the investment is in preference shares, the
 It is the power to participate in the
equity method is not appropriate regardless of
financial and operating policy decisions
the percentage because the preference share is
of the investee but is not control or
a non-voting equity.
joint control over those policies.
e. Technically, if the investor has significant
 Pinakinggan ka, pwedeng iba yung final
influence over the investee, the investee is said
desicion but the point is mag influence
to be an associate.
ka
 It is presumed to exist if the investor
holds, directly or indirectly (e.g. through
subsidiaries), 20% or more of the
voting power of the investee, unless it
can be clearly demonstrated that this is
not the case.

MEASUREMENT OF INVESTMENT IN
ASSOCIATE
The investment in associates is measured using
the equity method of accounting.
Equity Method- is based on the economic
relationship between the investors and the
investee. They are viewed as a single economic
unit (one and the same entity)
The accounting procedures under the equity
method are:
a. The investment is initially recognized at cost.
b. The carrying amount is increased by the
investor's share of the profit of the investee and