Purchase price of PPE

THE CASE

Entity K purchased a plant for a gross price of CU 200 million. The seller granted a 0.5% rebate. The gross price includes excise duty CU 18 million for which the buyer entity will get a tax refund and non-refundable VAT of CU 10 million. The company has also incurred CU 15 million for transportation costs, handling charges and insurance, CU 5 million for installation and CU 3 million for testing and technical engineering fees. It has earned Continue reading

PROPERTY ACCOUNTING USING THE COST MODEL

Property, plant and equipment (PPE) is often composed of various parts with varying useful lives or consumption patterns. These parts are (individually) replaced during the useful life of an asset.

Therefore:

  • Each part of an item of PPE with a cost that is significant in relation to the total cost of the item is depreciated separately (except where one significant part has a useful life and a depreciation method that is the same as those of another part of that
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What is the ‘component approach’?

Property, plant and equipment (PPE) is often composed of various parts with varying useful lives or consumption patterns. These parts are (individually) replaced during the useful life of an asset.

Therefore:

  • Each part of an item of PPE with a cost that is significant in relation to the total cost of the item is depreciated separately (except where one significant part has a useful life and a depreciation method that is the same as those of another part of that
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Food for thought for Property, plant and equipment

Economic benefits to be derived from an item of PPE can be direct or indirect. An item of PPE may generate economic benefit individually or in association with other assets and liabilities.

An item of PPE like safety and environmental equipment does not generate any direct economic benefit. Still, such items are recognised as PPE since they generate economic benefits along with associated assets. For example, a piece of safety equipment creates value enhancement to a chemical processing plant as … Continue reading

What is Property, plant and equipment?

Property, plant, and equipment (PP&E) is tangible items that are expected to be used in more than one period and that are used in production, for rental, or for administration. This can include items acquired for safety or environmental reasons. In certain asset-intensive industries, PP&E is the largest class of assets.

PP&E items are commonly grouped into classes, which are groups of assets having a similar nature and use. Examples of PP&E classes are buildings, furniture and fixtures, land, machinery, … Continue reading