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Questions and Answers
Spare parts that are used solely in connection with an item of PPE are treated as inventory.
Spare parts that are used solely in connection with an item of PPE are treated as inventory.
False
Heritage assets are expected to be depreciated over their useful life.
Heritage assets are expected to be depreciated over their useful life.
False
The cost of an addition that is a new unit is depreciated over its remaining life.
The cost of an addition that is a new unit is depreciated over its remaining life.
False
Rearrangement costs, such as moving an asset, are capitalized and amortized over the remaining life of the asset.
Rearrangement costs, such as moving an asset, are capitalized and amortized over the remaining life of the asset.
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Additions to PPE can include modifications that decrease the physical size of the asset.
Additions to PPE can include modifications that decrease the physical size of the asset.
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When a major spare part is expected to be used in more than one period, it qualifies as PPE.
When a major spare part is expected to be used in more than one period, it qualifies as PPE.
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The residual value of an asset when applying the cost model is generally set at 10%.
The residual value of an asset when applying the cost model is generally set at 10%.
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Modifications that do not represent additions, replacements, or improvements are classified as rearrangements.
Modifications that do not represent additions, replacements, or improvements are classified as rearrangements.
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Heritage assets may sometimes have future economic benefits or service potential other than their heritage value.
Heritage assets may sometimes have future economic benefits or service potential other than their heritage value.
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Infrastructure assets are characterized by having a significant residual value.
Infrastructure assets are characterized by having a significant residual value.
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Public infrastructures should be recognized as intangible assets in financial statements according to PPSAS 17.
Public infrastructures should be recognized as intangible assets in financial statements according to PPSAS 17.
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Reforestation projects can be recorded as Land Improvements in the books of accounts of the concerned entity.
Reforestation projects can be recorded as Land Improvements in the books of accounts of the concerned entity.
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Idle assets cannot be depreciated until they are put back into regular usage.
Idle assets cannot be depreciated until they are put back into regular usage.
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All unserviceable property is recorded in the Inventory and Inspection Report of Unserviceable Property (IIRUP) and then stays on the books.
All unserviceable property is recorded in the Inventory and Inspection Report of Unserviceable Property (IIRUP) and then stays on the books.
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Borrowing costs associated with acquiring a capitalized asset are always expensed.
Borrowing costs associated with acquiring a capitalized asset are always expensed.
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The performance evaluation of a reforestation project can only be conducted by the entity itself.
The performance evaluation of a reforestation project can only be conducted by the entity itself.
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PPE can be held for resale in the ordinary course of operations.
PPE can be held for resale in the ordinary course of operations.
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The minimum capitalization threshold for recognizing an individual asset as PPE is P10,000.
The minimum capitalization threshold for recognizing an individual asset as PPE is P10,000.
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Residual value is calculated as at least ten percent of the asset's cost.
Residual value is calculated as at least ten percent of the asset's cost.
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PPE acquired through a non-exchange transaction is measured at its original cost.
PPE acquired through a non-exchange transaction is measured at its original cost.
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Costs of employee benefits related to the construction of PPE are directly attributable costs.
Costs of employee benefits related to the construction of PPE are directly attributable costs.
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Installation and assembly costs are not included in the measurement of PPE.
Installation and assembly costs are not included in the measurement of PPE.
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The purchase price of PPE should include import duties and non-refundable purchase taxes.
The purchase price of PPE should include import duties and non-refundable purchase taxes.
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Testing costs for whether an asset is functioning properly are not included in the cost of PPE.
Testing costs for whether an asset is functioning properly are not included in the cost of PPE.
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The costs associated with dismantling and removing an item must always be recognized immediately as an expense.
The costs associated with dismantling and removing an item must always be recognized immediately as an expense.
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The provision for future site restoration costs is recognized as a liability until the restoration takes place.
The provision for future site restoration costs is recognized as a liability until the restoration takes place.
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Betterments that do not increase the estimated useful life of a capital asset will result in a change in the depreciation period.
Betterments that do not increase the estimated useful life of a capital asset will result in a change in the depreciation period.
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Costs involved in the purchase of Property, Plant, and Equipment (PPE) include the purchase price, but exclude any associated direct costs.
Costs involved in the purchase of Property, Plant, and Equipment (PPE) include the purchase price, but exclude any associated direct costs.
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A donation with a condition requires that the condition be fulfilled before any accounting transaction is recognized.
A donation with a condition requires that the condition be fulfilled before any accounting transaction is recognized.
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Exchange transactions without commercial substance involve acquiring an asset where the fair value of the acquired asset can be accurately measured.
Exchange transactions without commercial substance involve acquiring an asset where the fair value of the acquired asset can be accurately measured.
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If a capital asset's useful life is increased due to betterment, the revised depreciation period can exceed the asset's total estimated useful life.
If a capital asset's useful life is increased due to betterment, the revised depreciation period can exceed the asset's total estimated useful life.
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The purchase of PPE on an installment basis requires full payment upfront.
The purchase of PPE on an installment basis requires full payment upfront.
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Study Notes
PPE - Government Accounting
- PPE are tangible assets acquired (purchased, constructed, developed)
- Held for use in producing goods/services or program outputs
- Held for rental to others; or for administrative purposes
- Expected to be used over more than one reporting period
- Not intended for resale in the ordinary business course
Capitalization Threshold
- P15,000 represents the minimum cost for an individual asset recognized as PPE on the Statement of Financial Position
- Exceptions include groups of network assets and bulk acquisitions
Residual Value
- At least 5% of the asset's cost, after deducting disposal costs and factoring in the asset's age and condition at the end of its useful life
- Entities can determine a different appropriate percentage based on their specific operations
Measurement at Recognition
- PPE is measured at cost
- If acquired through a non-exchange transaction, the cost is measured at the fair value at acquisition date
- Cost components of PPE include: purchase price (including import duties, less trade discounts), direct costs for bringing to location and condition for intended use like employee benefits, site preparation, installation, testing costs (less net selling proceeds of testing samples), and professional fees.
Example - East Avenue Medical Center (2014)
- Purchase price: ¥1,000,000
- Delivery cost: ¥15,000
- Dismantling cost (after 5 years): ¥80,000
- Total cost: ¥1,064,674 (includes present value of dismantling cost at 10% borrowing rate)
Other Important Considerations
- Initial estimate of dismantling and site restoration costs are recognized as liabilities until restoration occurs.
- Purchase price, includes nonrefundable taxes, excludes discounts, and includes present value of decommissioning and restoration costs.
- Accounting entries for recognizing PPE (examples provided) and for various scenarios (on cash basis, on account, installment basis, purchase with promotions, different from PPE, lump sum price)
- Intra-agency transfers, with examples for same year and different year scenarios
- Repairs and maintenance and replacement costs, including examples of recording and derecognizing lost assets or assets with partial loss due to fire.
- Betterments, with cases of enhancement and replacement
- Spare parts and servicing equipment
- Borrowing costs (those related to acquisition of capitalized assets are capitalized, otherwise expensed)
- Heritage Assets
- Infrastructure Assets
- Reforestation Projects (and the accounting treatment for initial cost and upon fulfillment of project)
Idle Assets
- Continue depreciating idle assets, as future benefits (e.g., through obsolescence, wear and tear) are consumed
- Temporary idle activity or abandonment does not stop depreciation
Unserviceable Property
- Derecognized assets are recorded in an inventory and inspection report
- Impairment loss is recorded, by debiting PPE (cost less accumulated depreciation).
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Description
This quiz covers the key concepts of Property, Plant, and Equipment (PPE) in government accounting. It focuses on definitions, capitalization thresholds, and the measurement at recognition, ensuring a thorough understanding of tangible assets in financial reporting.
