1. Chapter 10:
Acquisition and
Disposition of
Property, Plant,
and Equipment
Prepared by: Fitriyeni Oktavia, SE., M.Ak
Intermediate Financial accounting, 4e
IFRS Ed. Kieso Weygandt Warfield
2. PSAK 16/ IAS 16
Used in Normal
Business Operation
Long Term
Assets
03
PPE
PSAK 13/ IAS 40
Held for Price
Appreciation
Investmen
t Property
PSAK 14/ IAS 2
Main Commodity to
Sell
Inventory
3. PSAK 16/ IAS 16
Used in Normal
Business Operation
Long Term
Assets
03
PPE
1. use in operations
and not for resale.
2. long-term and
depreciated.
3. tangible assets
characterized by
physical existence
4. • Initial Cost?
• Element Cost?
PSAK 16/ IAS 16
03
Recognition
Presentation
Measurement
After
Recognition
• Cost or Fair Value
(Revaluation)
• Disclosure in Financial
Statement
5. • Cost of
Building
Recognition
03
• Cost of Land • Cost of
Equipment
Acquisiton Cost
of Property, Plant and
Equipment
• companies use historical cost as the basis for valuing property, plant, and equipment. Historical cost
measures the cash or cash equivalent price of obtaining the asset and bringing it to the location
and condition necessary for its intended use.
6. Recognition
03
Acquisiton Cost
of Property, Plant and
Equipment
• A: Companies use historical cost as the basis for valuing property, plant, and equipment. Historical
cost measures the cash or cash equivalent price of obtaining the asset and bringing it to the
location and condition necessary for its intended use (IAS 16)
Q: How Company Record initial cost of PPE ?
7. Element of Cost of PPE
The cost (a) its 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.
(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.
Examples of directly attributable costs are:
(a) costs of employee benefits (as defined in IAS 19 Employee Benefits) arising directly from the
construction or acquisition of the item of property, plant and equipment;
(b) costs of site preparation;
(c) initial delivery and handling costs;
(d) installation and assembly costs;
(e) costs of testing whether the asset is functioning properly (ie assessing whether the technical and
physical performance of the asset is such that it is capable of being used in the production or
supply of goods or services, for rental to others, or for administrative purposes); and
(f) professional fees.
8. Excluded from Cost of PPE
Examples of costs that are not costs of an item of
property, plant and equipment are:
(a)costs of opening a new facility;
(b)(b) costs of introducing a new product or
service (including costs of advertising and
promotional activities);
(c) costs of conducting business in a new location
or with a new class of customer (including
costs of staff training); and
(d)administration and other general overhead
costs.
9. Cost of Land
1. Purchase Price
Purchase Price of Land • Include: non-refundable purchase taxes, less
trade discounts and rebates.
2. Cost Attributable
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a. Closing Cost:
• Attorney Fee
• Title Document
b. Cost to Get Land in Condition for its intended
purpose (If there are sale of scrap, the proceed
should record as reduction in the price of land).
• Grading
• Filling
• Draining
• Clearing
c. Certain Obligation on the Land • Liens (legal right against assets that are typically
used as collateral to satisfy a debt)
• Encumbrances
d. Special Assesment Cost of Land
(Permanent)
pavements, street lights, sewers, and drainage
systems.
Improvement Land
(Limited Lives)
private driveways, walks, fences, and parking lots
10. Cost of Building
1. Purchase Price
Purchase Price of Building • Include: non-refundable purchase taxes, less
trade discounts and rebates.
2. Contract Price
Price stated on Realization of Construction by
Other Party
Self Constructed Building?
Companies consider all costs incurred, from excavation to completion, as part of the building
costs.
All costs incurred
a. materials, labor, and overhead costs incurred
during construction,
b. professional fees and building permits.
Generally, companies contract others to
construct their buildings.
11. Self-Constructed Assets
Self Constructed Building?
Direct Cost
a. Direct Material
b. Direct Labour
Overhead Cost
• include power, Heat, light, insurance, property taxes on factory buildings and equipment, factory
supervisory labor, depreciation of fixed assets, and supplies
Assign no fixed overhead to the cost of the
constructed asset:
Fixed OC: the company will have the same costs
regardless of whether or not it constructs the
asset.
Thus, the company would assign to the cost of
the constructed asset variable overhead costs
that increase as a result of the construction.
• Assign a portion of all overhead to the
construction process.
