PP&E are defined as assets with the following properties: (607)
Held for use in the production of goods and services, for rental to others, or for
administrative purposes, but not for sale in the ordinary course of business.
They are used over more than one accounting period and are usually depreciated, except
They are tangible
Recognition Criteria (608):
It is probable that the item’s associated future economic benefits will flow to the entity
Its cost can be measured reliably
An entity would only separate out components that make up a relatively significant portion of the
asset’s total cost or have different useful lives/patterns of depreciation.
Cost - IFRS (609)
Capitalization stops when the asset is in place and ready to be used as management intended,
even if it has not begun to be used of is used at less than a desirable capacity level.
Any cost/revenue that is not necessary to develop the asset is recognized in income when
incurred of earned, i.e. cannot be capitalized.
Self-constructed assets (609): only directly attributable costs – cost directly related to the specific
activities involved in the construction process – are capitalized. Fixed overhead and wasted
inputs are expensed.
Borrowing costs (610): to qualify for capitalization, the borrowing costs must be directly
attributable to a project – i.e. must be avoidable borrowing costs.
Dismantling and Restoration costs (611): recognizes costs of both legal and constructive
obligations, including only those related the acquisition of the asset, not those related to the use
of the asset in the production of goods or services.
Measurement of Cost (611)
Cost is measured by the amount of cash or cash equivalents paid or the fair value of the other
consideration given to acquire an asset.
When cash is not exchanged at the date of acquisition:
Cash Discount (612): not taken cash discount can be deducted from the asset cost or not
Deferred payment terms (612): the asset’s cost is the PV of the consideration (e.g. Notes
Payable) exchanged at the transaction date.
Lump-Sum purchases (613): the practice is to allocate the total cost among the various
assets based on their relative fair values.
Non-monetary exchanges (614): o Share-Based payments (616): acquisition cost is the fair value of the asset acquired
OR the fair value of the shares given.
o Asset exchange (617): the cost is determined by the fair value of the assets given up
unless the fair value of the asset received can be more reliably measured.
Gain/loss is recognized in NI. However, the exchange is recorded at the carrying
amount of the asset given up if: i) the transaction has commercial substance, or ii)
fair values are not reliably measurable.
Contributed assets and government grants (620): transfer of asset, nothing is exchanged.
o Capital approach: only appropriate for a donation from an owner: credit contributed
surplus, debit PP&E asset
o Income approach: reflects contributions in NI by
Cost reduction method: reducing asset cost and therefore future
depreciation by the amount of government assistance re