PROPERTY, PLANT & EQUIPMENT

Overview on the topic:

Chapter Title Sub-topics___
15 PPE –Part 1 Initial recognition & measurement

16 PPE –Part 2 Subsequent measurement

Related standard:
• PFRS 16: Property, Plant and Equipment
APPLICATION OF
CONCEPTS
LOQUACIOUS TALKATIVE Co. acquired a piece of factory equipment
overseas on cash basis for ₱400,000. Additional costs incurred include
the following: commission paid to broker for the purchase of the
equipment, ₱20,000; import duties of ₱100,000; non-refundable
purchase taxes of ₱40,000; freight cost of transferring the equipment to
LOQUACIOUS’ premises, ₱4,000; costs of assembling and installing the
equipment, ₱8,000; costs of testing the equipment, ₱6,000;
administration and other general overhead costs, ₱16,800; and
advertisement and promotion costs of the new product to be produced by
the equipment, ₱15,200. The samples generated from testing the
equipment were sold at ₱2,000. How much is the initial cost of the
equipment?
LOQUACIOUS TALKATIVE Co. acquired a piece of factory equipment
overseas on cash basis for ₱400,000. Additional costs incurred include
the following: commission paid to broker for the purchase of the
equipment, ₱20,000; import duties of ₱100,000; non-refundable
purchase taxes of ₱40,000; freight cost of transferring the equipment to
LOQUACIOUS’ premises, ₱4,000; costs of assembling and installing the
equipment, ₱8,000; costs of testing the equipment, ₱6,000;
administration and other general overhead costs, ₱16,800; and
advertisement and promotion costs of the new product to be produced by
the equipment, ₱15,200. The samples generated from testing the
equipment were sold at ₱2,000. How much is the initial cost of the
equipment?
Purchase price 400,000
Commission to broker 20,000
Import duties 100,000
Non-refundable purchase taxes 40,000
Transportation cost 4,000
Assembling and installation costs 8,000
Testing costs 6,000
Proceeds from sale of samples generated (2,000)
Initial cost of equipment 576,000
On April 1, 2021, ESCULENT EDIBLE Co. purchased land and building by paying ₱40,000,000 and
assuming a mortgage of ₱8,000,000. The land and building have appraised values of ₱20,000,000 and
₱40,000,000, respectively. The building will be used by ESCULENT Co. as its new office.

Additional costs relating to the purchase include the following:

Legal cost of conveying and registering title to land ₱32,000
Payment to tenants to vacate premises 36,000
Option paid on the land and building 24,000
Option paid on similar land and building not acquired 12,000
Broker's fee on the land and building 60,000
Unpaid real estate taxes prior to April 1, 2021 assumed
by ESCULENT Co. – assessed on land 120,000
Real estate taxes after April 1, 2021 80,000
Repairs and renovation costs before the building
is occupied 160,000
Repair costs after the building is occupied 200,000

How much are the respective costs of the land and the building?
On April 1, 2021, ESCULENT EDIBLE Co. purchased land and building by paying ₱40,000,000 and
assuming a mortgage of ₱8,000,000. The land and building have appraised values of ₱20,000,000 and
₱40,000,000, respectively. The building will be used by ESCULENT Co. as its new office.

Additional costs relating to the purchase include the following:

Legal cost of conveying and registering title to land ₱32,000
Payment to tenants to vacate premises 36,000
Option paid on the land and building 24,000
Option paid on similar land and building not acquired 12,000
Broker's fee on the land and building 60,000
Unpaid real estate taxes prior to April 1, 2021 assumed
by ESCULENT Co. – assessed on land 120,000
Real estate taxes after April 1, 2021 80,000
Repairs and renovation costs before the building
is occupied 160,000
Repair costs after the building is occupied 200,000

How much are the respective costs of the land and the building?
Cash payment 40,000,000 Fair values Fractions
Mortgage assumed 8,000,000 Land 20,000,000 20/60
Total acquisition cost 48,000,000 Building 40,000,000 40/60
60,000,000

Land Building
Purchase price (48M x 20/60); (48M x 40/60) 16,000,000 32,000,000
Legal cost of conveying and registering title 32,000 -
to land
Payment to tenants to vacate premises 12,000 24,000
(36K x 20/60); (36K x 40/60)
Option paid on the land and building 8,000 16,000
(24K x 20/60); (24K x 40/60)
Broker's fee on the land and building 20,000 40,000
(60K x 20/60); (60K x 40/60)
Unpaid real estate taxes prior to April 1, 120,000 -
20x1 assumed – assessed on land
Repairs and renovation costs before the - 160,000
building is occupied
Totals 16,192,000 32,240,000
APPLICATION OF
CONCEPTS
On January 1, 2021, SIMPLETON FOOL Co. acquired a piece of
equipment with an estimated useful life of 4 years and a residual
value of ₱80,000 for a total purchase cost of ₱400,000. At normal
capacity, the equipment’s estimated service life is 40,000 hours or a
total productive capacity of 160,000 units of a product. In 2021 and
2022, the actual manufacturing hours were 16,000 and 8,000,
respectively, and the actual units produced were 60,000 and 30,000,
respectively. How much is the accumulated depreciation on
December 31, 2022 under each of the following depreciation
methods?
1) SLM
2) SYM
3) DDB
4) UOPM (Input)
5) UOPM (Output)
Straight line: (400,000 – 80,000) x 2/4 = 160,000

Sum-of-the-years’ digits: SYD denominator = 4 x [(4 + 1) ÷ 2] = 10

(400,000 – 80,000) x [(4 + 3) / 10] = 224,000

Double declining balance: DDB rate = 2/4 = 50%

Depreciation - 20x1 (400K x 50%) 200,000
Depreciation - 20x2 (400K - 200K) x 50% 100,000
Accumulated depreciation - Dec. 31, 20x2 300,000

Units-of-production method (based on input):

(400,000 – 80,000) ÷ 40,000 hours = 8 per hr.
(16,000 + 8,000) x 8 = 192,000

Units-of-production method (based on output):

(400,000 – 80,000) ÷ 160,000 units = 2 per unit
(60,000 + 30,000) x 2 = 180,000
 QUESTIONS????
 REACTIONS!!!!!
END