Module 2 (PPE)

Question 1

What is PPE?

Answer 1

Property, Plant and Equipment are tangible items that you can see and touch like buildings, machinery and land.

Question 2

What is Historical cost?

Answer 2

Historical cost measures PPE using information derived from the price of the transaction, that is the original amount paid to acquire the asset.

Historical cost does not reflect changes in the value of PPE

Question 3

What is Fair Value?

Answer 3

Fair value is the price that would be received to sell an asset at market value.

Therefore reflects the current value of the asset.

Question 4

What costs can be capitalised?

Answer 4

• Purchase price (including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates)
• Cost of staff directly involved in the acquisition or construction of the asset
• Costs of preparing the site
• Delivery costs
• Costs of installing and assembling the asset
• Cost of testing to check it is in working order
• Legal costs
• Costs relating to safety
• Costs to dismantle and remove the asset
• Costs to restore the site

Question 5

What costs can’t be capitalised?

Answer 5

• Cost of opening a new facility
• Cost of introducing a new product or service (for example the cost of advertising)
• Cost of conducting business in a new location
• Staff training costs
• Administration and other general costs

Question 6

What is the one exception to VAT not being included in the initial cost of PPE?

Answer 6

Company cars

VAT on company cars is non-recoverable and therefore included in the cost of PPE