Podcast
Questions and Answers
How are subsequent costs that are improvements or betterments accounted for?
How are subsequent costs that are improvements or betterments accounted for?
What is the term for the acquisition of two or more assets for a lump-sum cost?
What is the term for the acquisition of two or more assets for a lump-sum cost?
How is the cost of an asset determined when the cash price is not given?
How is the cost of an asset determined when the cash price is not given?
What account is used to record the difference between the face amount and the proceeds of a note payable?
What account is used to record the difference between the face amount and the proceeds of a note payable?
Signup and view all the answers
In what order of priority is the cost of an asset recorded when acquired through issuance of shares of stock?
In what order of priority is the cost of an asset recorded when acquired through issuance of shares of stock?
Signup and view all the answers
What is the term for an exchange of one asset for another, with cash paid for the difference in value?
What is the term for an exchange of one asset for another, with cash paid for the difference in value?
Signup and view all the answers
How is the cost of an asset received measured in an exchange with commercial substance?
How is the cost of an asset received measured in an exchange with commercial substance?
Signup and view all the answers
When is gain or loss on exchange recognized?
When is gain or loss on exchange recognized?
Signup and view all the answers
What is the primary condition necessary to recognize Property, Plant, and Equipment (PPE) as assets?
What is the primary condition necessary to recognize Property, Plant, and Equipment (PPE) as assets?
Signup and view all the answers
What is the basis of measurement for Property, Plant, and Equipment (PPE)?
What is the basis of measurement for Property, Plant, and Equipment (PPE)?
Signup and view all the answers
What is included in the initial cost of PPE?
What is included in the initial cost of PPE?
Signup and view all the answers
When are subsequent costs capitalized?
When are subsequent costs capitalized?
Signup and view all the answers
What is the classification of 'Furniture And Fixtures' in Property, Plant, and Equipment?
What is the classification of 'Furniture And Fixtures' in Property, Plant, and Equipment?
Signup and view all the answers
Which of the following is NOT a condition for capitalizing subsequent costs?
Which of the following is NOT a condition for capitalizing subsequent costs?
Signup and view all the answers
Study Notes
Property, Plant, and Equipment (PPE)
- Consists of five types: Land, Buildings, Equipment/Machinery, Furniture and Fixtures, and Land Improvements
- Two conditions necessary to recognize PPE items as assets: • Probable future economic benefits associated with the asset will flow to the enterprise • The cost of the asset can be measured reliably
Measurement of PPE
- Measured at cost, which includes: • Purchase price after deducting trade and cash discounts (net method) • Additional costs of bringing the asset to working condition, such as freight, insurance, installation cost, and testing fees
Initial Cost of PPE
- Additional costs incurred after initial recognition of PPE are either capitalized or expensed
Subsequent Costs of PPE
- Subsequent costs incurred are added to the existing cost of the PPE (capitalized) if the costs: • Extend the useful life of the asset • Increase the capacity of the asset • Substantially improve output quality • Result in substantial reduction in operating cost
- Subsequent costs that are capitalized include: • Additions • Improvements or Betterments • Replacements of major parts
- Subsequent costs that are expensed include: • Costs that only maintain a given level of services • Costs that benefit only the current period • Replacements of minor parts • Rearrangement
Major Types of Subsequent Expenditures
- Ways of Acquiring Plant Assets: • Lump-sum (Basket) Purchase • Deferred Payment (Purchase on Account) • Issuance of shares of stock • Exchanges (with commercial substance or no commercial substance)
Lump-sum (Basket) Purchase
- Acquisition of two or more assets for a lump-sum cost, which is allocated among the assets purchased using their relative (proportionate) fair market values
Deferred Payment (Purchase on Account)
- Buyer issues a note payable for the amount and pays the account in installments
- Cost of the asset is the cash price if given, or the present value of the installment plus any down payment made if cash price is not given
Issuance of shares of stock
- Order of priority in recording the cost of the asset: • Fair value of the asset received • Fair value of the shares issued • Par value of the shares issued
Exchanges
- An exchange has commercial substance when there is a gain or loss that results from the exchange
- Cost of the asset received or acquired is measured at the fair value of the asset given, plus cash paid, if payor, or minus the cash received, if recipient
- If an exchange lacks commercial substance, the cost of the asset acquired is measured at the carrying value of the asset given plus cash paid, if payor or minus cash received, if recipient
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
This quiz covers the classification of property, plant, and equipment assets, including land, buildings, and equipment, and the necessary conditions for recognition as assets according to Philippine Accounting Standard 16.
