Initial recognition of property, plant and equipment (PPE)

Be the reasons what they may, the management has decided to purchase an asset. It has agreed on a budget and also made certain person responsible for acquiring it. The very moment your company possesses the rights and obligations to the asset, is the moment you recognize the asset on your balance sheet.

Not taking into account any future or subsequent measurement considerations you simply recognize the asset in its cost value. Provided you have not yet paid to the supplier, the entry is as follows:

Db PPE class

Cr Payable to supplier

With this you have the asset and related liability recognized on the balance sheet. That is the very first step done when it comes to accounting for assets.

In addition to this, you should open a PPE information card for that specific asset. This card should hold the following info as a minimum:

– Date of acquisition;
– Useful life;
– Depreciation method;
– Residual value;
– Person responsible.

And with these two actions you have the essential that needs to be done when recognizing assets done. The asset is on the balance sheet as yours and you also have the information relevant for any future measurements stored in orderly manner on the information card.