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Canada (162,403)
Accounting (533)
ACC 414 (22)
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Chapter 10

Chapter 10 – Property, plant, and equipment (accounting model basics).docx

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Course Code
ACC 414
Else Grech

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Chapter 10 – Property, plant, and equipment (accounting model basics) RECOGNITION AND COST ELEMENTS  Property, Plant and Equipment assets o Defined as an asset with the following characteristics:  They are held for use in the production of goods and services, for rental to others, or for administrative purposes (not intended for sale in ordinary business)  They are used over more than one accounting period.  They are tangible. o Inventory: assets with multiple uses and are regularl used and replaced within the accounting period o Property, plant and equipment: major spare parts and standby or servicing equipment used only with a specific caital asset and useful for more than one period.  Recognition principle o The following two criteria must be satisfied to be capitalized (if not recognized as an expense):  It is probably that the items associated future economic benefits will flow to the entity  Its cost can be measured reliably  Asset components  unit of measure issue: which items should be recognized in PP&E o Professional judgement o Significance of the individual parts to the “whole” asset o Differing useful lives / different patterns of delivering economic benefit COST ELEMENTS  Cost elements: what are the the cost included in the asset o *Any expenditure needed to acquire the asset and bring it to its location and ready it for use*  Anything that represents the above should be added to costs of asset  The item’s purchase price net of trade discounts and rebates  Expenditures necessary to bring the asset to its required location and condition to operate as management intended  Estimate of the costs of obligations associated with the asset’s eventual disposal  Self-Constructed Assets o Numerous expenditures that were incurred must be reviewed to arrive at a cost o Overhead  Only directly attributable costs ( costs directly related to the specific activities involved in the construction process)  ?BORROWING COSTS?  Dismantling and restorion costs o Asset retirement In order to be able to use the long lived asset companies often assume responsibility for the costs associated with dismantling the item, removing it, and restoring the site at the end of its useful life 1  Measurement of cost o Cost is the cash cost when the asset is rec
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