PPE Accounting for Govt. PDF

PPE Government Accounting PPE are tangible assets that are: 1. purchased, constructed, developed or otherwise acquired; 2. held for use in the production or supply of goods or services or to produce program outputs; 3. for rental to others; 4. for administrative purposes; 5. expected to be used dur...

PPE Government Accounting PPE are tangible assets that are: 1. purchased, constructed, developed or otherwise acquired; 2. held for use in the production or supply of goods or services or to produce program outputs; 3. for rental to others; 4. for administrative purposes; 5. expected to be used during more than one reporting period; and 6. not intended for resale in the ordinary course of operations. Applying the Capitalization Threshold of P15,000 The capitalization threshold of P15,000 represents the minimum cost of an individual asset recognized as a PPE on the Statement of Financial Position Exc: 1. Group of network asset 2. Bulk acquisition Residual Value is the equivalent to at least five percent (5%) of the cost of an asset that the entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life, unless a more appropriate percentage is determined by an entity based on their operation. Sec. 5. Measurement at Recognition PPE that qualifies for recognition as an asset shall be measured at cost. However, where the PPE is acquired through a non-exchange transaction, its cost shall be measured at its fair value as at the date of acquisition. The cost of an item of PPE comprises: (Pars. 30 and 31, PPSAS 17) a. Purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; b. Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Examples of directly attributable costs are: 1. Costs of employee benefits arising directly from the construction or acquisition of the item of PPE; This shall be limited to salaries and benefits of employees directly involved in the project delivery (example: project management or construction) 2. Costs of site preparation; 3. Initial delivery and handling costs; 4. Installation and assembly costs; 5. Costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment); and 6. Professional fees.  c. The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired, or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. These costs may be incurred as a result of a contract. When such costs can be reasonably estimated, they shall be accrued (net of expected recoveries), as part of the capital asset and amortized over its useful life. The provision for future site restoration costs is to be recognized as a liability until the future site restoration takes place. PPE Purchase price incl. nonrefundable taxes, excl. discounts, + direct costs +PV of decommissioning and restoration costs Purchase of PPE - On Cash Basis On Account On Installment Basis Purchase with promotional items – same as PPE Purchase with promotional items – different from PPE At a lump sum price Construction of PPE – under 800K contract; 75K bond; 15% advance to contractor; 50% recoupment of advances; 10% retention upon payment Construction of PPE – under 800K contract; 75K bond; 15% advance to contractor; 50% recoupment of advances; 10% retention upon payment Construction of PPE – under 800K contract; 75K bond; 15% advance to contractor; 50% recoupment of advances; 10% retention upon payment Construction of PPE – under Administration Construction of PPE – under Administration Exchange Transactions Exchange without Commercial Substance e.g. acquired motor vehicle in exchange of old truck; FV of motor vehicle cannot be measured Donation without Condition Donation with Condition Upon fulfillment of the condition, i.e., school building constructed and completed. Dr. School Bldg Cr. CIP Intra-agency transfers - same year Intra-agency transfers – different year Inter-agency transfers Repairs and Maintenance and Replacement Betterments Where betterment enhances the future economic benefits or service potential of a capital asset without increasing its estimated useful life, the depreciation period shall remain the same. Where betterment increases the estimated useful life of a capital asset, its useful life shall be changed. The revised depreciation period shall not exceed the estimated useful life of that capital asset. Where betterment involves the replacement of an identifiable component of a capital asset, the original cost of that component and the related accumulated depreciation shall be derecognized. Spare parts and servicing equipment Spare parts and servicing equipment carried as inventory shall be recognized in surplus or deficit as consumed. However, major spare parts and stand-by equipment qualify as PPE when an entity expects to use them during more than one period. Similarly, if the spare parts and servicing equipment can be used only in connection with an item of PPE, they are accounted for as PPE. Additions Additions are modifications which increase the physical size or function of the PPE. Two types of expenditures which shall be both capitalized are namely, entirely new unit and expansion, and enlargement or extension of the old asset. For example, the addition of a wiring to a building or the addition of an air conditioning system increases the service potential of that facility and shall be capitalized. On the other hand, rearrangements are cost incurred in moving an asset from one location to another that will benefit future periods but do not represent additions, replacements or improvements. Additions The cost of an addition which is a new unit is depreciated over its useful life. But the cost of an expansion shall be depreciated over its useful life or remaining life of the PPE of which it is part, whichever is shorter. Rearrangement cost is the relocation or reinstallation of an asset which proves to be less efficient in its original location. This cost is also known as “moving cost”, “reinstallation cost” or “relocation cost.” This cost is capitalized and amortized over the remaining life of the asset for which it pertains. The undepreciated amount of the original installation cost shall be expensed and the pertinent accumulated depreciation accordingly derecognized. Subsequent Measurement Cost model 5% residual value, generally SLM depreciation Life – Gen: determined by NG / NGA but the GAM provides for guidelines Subject to Impairment Heritage Assets No dep Heritage assets are those assets which have historical, cultural and environmental significance, and are intended to be preserved in trust for future generations. Heritage assets shall be measured at cost. If acquired through non-exchange transaction, its cost is its fair value at the date of acquisition Some heritage assets have future economic benefits or service potential other than their heritage value, for example, a historic building being used for office accommodation. In these cases, they may be recognized and measured on the same basis as other items of PPE Infrastructure Assets No Residual Value Besides the five criteria for recognizing PPE, infrastructure assets have the following additional characteristics: a. Part of a system or network; b. Specialized in nature and do not have alternative uses; c. Immovable; and d. May be subject to constraints on disposal. In accordance with PPSAS 17, public infrastructures shall be recognized as PPE in the entity’s financial statements.. These shall be recorded in the books of accounts as Infrastructure Assets such as road networks, sewer system, water and power supply systems, communication networks, etc Reforestation Project reforestation projects are recognized as Land Improvements, Reforestation PROJECTS in the books of accounts of the DENR or other entity concerned. Only directly attributable cost shall be recognized as part of the initial cost of the project – CIP After the duration of the planting activities (normally 3 years), the reforestation project shall be turned over to the entity provided that the conditions in the contract have been complied with, and project has passed the performance evaluation by a third party identified by the entity. Idle Continue to depreciate – Temporary idle activity or abandonment of PPE does not preclude depreciating the asset, as future benefits are consumed not only through usage but also through obsolescence, and wear and tear. Unserviceable Property Derecognized All unserviceable property shall be reported in the Inventory and Inspection Report of Unserviceable Property (IIRUP). PPE reported in the IIRUP shall be dropped from the books by debiting Impairment Loss-Property, Plant and Equipment (cost of the PPE less Accumulated Depreciation). Lost PPE Lost PPE Lost PPE Borrowing Costs NG – expensed NGAs – capitalized if related to the acquisition of capitalized asset