Property, Plant & Equipment

Question 1

Property, Plant and Equipment Definition

Answer 1

• Property- Includes land and buildings like offices, warehouses, retail spaces, and factories
• Plant- Plant refers to industrial facilities and machinery used in manufacturing.
• Equipment- Encompasses tools, vehicles, office equipment, computers, and other apparatus necessary for business operations.

Question 2

Property Plant and Equipment: Initial Measurement

Answer 2

Capitalized- Costs incurred to get the asset in a state of ready-to-use

Expensed- Costs incurred after the asset is in a state of ready-to-use

Question 3

Land Initial Measurment

Answer 3

+Purchase price
+Broker Commissions
+Title & Recording Fees
+ Legal Fees
+ Surveying Charges
+ Any existing obligations assumed by the buyer
+ Price paid to demolish an old building/ price paid to graze the land.
- proceeds from the sale of scrap recovered from demolition of an existing building
= Total Cost

Journal Entry: Acquisition of land
Land Debit
Cash Credit
Liability Credit

Question 4

Purchased Building: Initial Measurement

Answer 4

+Purchase price
+ Alteration & improvement Cost
+ Architects Fees
+ Deferred repairs (Repair charges neglected by the previous owner)
+ Excavation Cost
+ Delinquent Taxes
= Total Cost

Journal Entry: Acquisition of Building
Building Debit
Cash Credit

Question 5

Purchased Equipment: Initial Measurement

Answer 5

+ Purchase Price
+ Transportation
+ Sales & Excise Tax
+ Legal Fees
+ Delinquent Taxes
+ Title Costs
+ In-transit Insurance
+ Surveying Charges
+ Installation Cost
= Total Cost

Journal Entry
Equipment Debit
Cash Credit

Question 6

Self Constructed PPE: Initial Measurement

Answer 6

Direct Materials= Raw materials are directly used in the construction of the asset.

Direct Labor= Wages and salaries paid to employees who are directly involved in the construction process.

Variable & Fixed Overhead- Overhead such as utilities or indirect labor used in construction.

Construction Period Interest
Capitalized Interest
- Interest costs incurred during the construction period.

This is calculated as lower of:
- Weighted Avg. accumulated expenditure * interest rate

• Actual Interest Cost

Non-Capitalized Interest
- However the following interest costs are not capitalized:
* Interest before commencement of Construction
* Interest after completion of construction
* Amount borrowed in excess of amount spent.
* Interest on a loan taken to purchase an asset.
* Interest on loan to manufacture inventory sold in the ordinary course of business.