Professional Documents
Culture Documents
EQUIPMENT
OUTLINE
I. Definition
II. Recognition of Property
III. Measurement at recognition
IV. Measurement after recognition
Definition
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 for more than one year.
Examples of PPE
Land
Building
Machinery
Ship
Aircraft
Motor vehicle
Furniture and fixtures
Office equipment
Patterns, molds and dies
Leasehold improvements and book plates
Recognition of PPE
It is probable that future economic
benefits associated with the asset
will flow to the entity.
The cost of the asset can be
measured reliably.
Spare parts and servicing equipment
Most spare parts
carried as inventory and recognized as
expense
Major spare parts and stand-by equipment
qualify as PPE when use for more than
one year
Spare parts and servicing equipment that
can be used only in connection with an
item of PPE are accounted for as PPE
Measurement
Measurement at recognition
At COST
Problem 22-7 # 1
Machinery 500T
Cash 500T
Acquisition by Purchase
a. Cash Purchase
Lump Sum Purchase
Allocation is done on the basis of
relative fair value of the assets
acquired.
Problem 22-7 # 2
Land(5,500T x 2/5) 2,200T
Building (5,500T x 3/5) 3,300T
Cash 5,500T
Acquisition by Purchase
b. Acquisition on Account Subject to
Cash Discount
invoice price minus the discount,
regardless of whether the discount is
taken or not .
Problem 22-6
A. Payment was made within the
discount period
Gross Method:
Machinery 500T
A/P 500T
A/P 500T
Cash 490T
Machinery 10T
A. Payment was made within the
discount period
Net method:
Machinery 490T
A/P 490T
A/P 490T
Cash 490T
A. Payment was made beyond the
discount period
Gross Method:
Machinery 500T
A/P 500T
A/P 500T
Purchase discount lost 10T
Cash 500T
Machinery 10T
A. Payment was made beyond the
discount period
Net method:
Machinery 490T
A/P 490T
A/P 490T
Purchase discount lost 10T
Cash 500T
Acquisition by Purchase
c. Acquisition on Installment Basis
Cost is at cash price equivalent
If cash price is not available, the asset is
recorded at an amount equal to present
value of all payments using an implied
interest rate.
The excess of the installment price over the
cash price is treated as an interest to be
amortized over the credit period
c. Acquisition on Installment Basis
Case 1 Cash price is given.
Problem 22-8
Jan. 1, 2013
Equipment 580T
Discount on NP 120T
Cash 200T
Note payable 500T
c. Acquisition on Installment Basis
Case 1 Cash price is given.
Schedule of Amortization:
Year NP Fraction Amort.
2013 500T 5/15 40T
2014 400T 4/15 32T
2015 300T 3/15 24T
2016 200T 2/15 16T
2017 100T 1/15 8T
1,500T 120T
c. Acquisition on Installment Basis
Case 1 Cash price is given.
Dec. 31, 2013
Note payable 100T
Cash 100T
Downpayment 100T
Present value of the note
( 200T x 3.17) 634T
Total cost 734T
c. Acquisition on Installment Basis
Case 2 Cash price is not available.
Jan. 1, 2013
Machinery 734T
Discount on NP 166T
Cash 100T
Note payable 800T
Schedule of Amortization
c. Acquisition on Installment Basis
Case 2 Cash price is not available.
Dec. 31, 2013
Note payable 200T
Cash 200T
Building 7,000T
Cash 1,000T
Share Capital 5,000T
Share Premium 1,000T
Non-cash Acquisition
b.) Issuance of bonds payable
c/o Financial Accounting Part 2
The asset acquired is measured in
the following order:
a.) Fair value of bonds payable
b.) Fair value of asset received
c.) Face value of bonds payable
Non-cash Acquisition
c.) Donation
Recorded at fair value of the asset
received
(i) Donated by a Stockholder
Donated capital is credited.
Expenses incurred in connection with
the donated asset should be charged to
the donated capital account. (ex.
registration fees and legal fees)
Non-cash Acquisition
c.) Donation
(i) Donated by a Shareholder
Directly attributable costs incurred
such as installation and testing cost
necessary to bring the donated asset to
the location and condition for its
intended use shall be capitalized
Problem 22-7 # 4
Equipment 1,000T
Donated Capital 1,000T
FV of AR = FV of AGU cash
received
Entries
12/31/14 NP 200T IE 103,664
cash 200T D on NP 103,664
Environmental exp 2M
Cash 2M
Deferred income GG 3M
Income from GG 3M
(2/20 x 30M)
Government Grants
Grants related to depreciable
assets should be recognized as
income over the periods and in
proportion to the depreciation of
the related assets.
Problem 23-5 # 2
Cash 40M
DI GG 40M
Bldg 50M
Cash 50M
Depreciation 2.5M
AD (50/20) 2.5M
DI-GG 2M
Income from GG 2M
(40/20)
Government Grants
Grants related to nondepreciable
assets requiring fulfillment of
certain conditions should be
recognized as income over the
periods which bear the cost of
meeting the conditions.
Problem 23-5 # 3
Land 50M
DI-GG 50M
Building 80M
Cash 80M
Depreciation 3.2M
AD (80/25) 3.2M
DI-GG 2M
Income from GG(50/25) 2M
Government Grants
Grants that become receivable as
compensation for expenses or
losses already incurred or for the
purpose of giving immediate
financial support to the enterprise
with no further related costs
should be recognized as income
of the period in which it becomes
receivable.
Problem 23-5 # 4
Cash 10M
Income from GG 10M
Problem 23-6
Land 12M
DI- GG 12M
Land improvements 2M
Cash 2M
DI-GG 2.4M
Income from GG 2.4M
(12x 2/10)
Problem 23-7
Cash 12M
DI GG 12M
Bldg 9M
Cash 9M
Depreciation 900T
AD 900T
Tuition exp 600T
Cash 600T
Problem 23-7
DI-GG 1,650T
Income from GG 1,650T
Bldg(9M/10) 900T
Tuition (3M/4) 750T
Total 1,650T
Presentation of Government Grants
1. Related to assets
a.) By setting the grant as deferred
income
b.) By deducting the grant in arriving at
the carrying amount of the assets
Problem 23-8
1.) Deferred Income
Machinery 7M
Cash 7M
Cash 1M
DI-GG 1M
Depreciation 1,300T
AD 1,300T
DI-GG 200T
Income from GG 200T
Problem 23-8
2.)Deduction from the cost of the asset
Machinery 7M
Cash 7M
Cash 1M
Machinery 1M
Depreciation 1,100T
AD 1,100T
Repayment of Government Grants
A government grant that becomes
repayable shall be accounted for as
a change in accounting estimate.
Repayment of grant related to
income shall be applied first
against any unamortized deferred
income and any excess shall be
recognized immediately as an
expense.
Repayment of Government Grants
Repayment of a grant related to an
asset shall be recorded by
increasing the carrying amount of
the asset.
The cumulative additional
depreciation that would have been
recognized to date I the absence of
the grant shall be recognized
immediately as an expense.
Repayment of Government Grants
Refer to Illustration on page 988 to
1016
Ans. 23-11
Grant of interest-freeloan
Refer to illustrative problem pg 1019
Answer 23-10