The item within your property, plant and equipment where you’d use borrowing is something you’re building over time. When you buy an asset which costs a lot, you use a finance lease, however what if you’re building something an asset which evidently is also costly (hence it also takes a longer period) and you’ve actually taken a loan from the bank to finance the building?
Category Archives: 1.5.2 Initial Recognition
Non-refundable taxes, duties
Acquiring property, plant and equipment items means that you have pay up a considerable amount sometimes not for the asset itself but for say import duties. That’s an expense you incurred to acquire the asset, to be able to start using it (otherwise they’d held it at the customs).
Acquisiton cost of a PPE item
Acquisition cost of a PPE item is important. It’s a value an asset is initially recognized on the face of a balance sheet and furthermore is depreciated into expenses over a period of time. As it impacts both the amount you carry within your company’s assets and your expenses over a period of time, it’s important to understand and agree on what exactly is included within the cost of the item and what not. Continue reading
Prepayments and construction in progress
Every now and then you’re required to make prepayments for an acquisition of asset. Or you’re constructing a building; or setting up machinery is taking time and setting up the place for the machine requires additional investments. How should you treat those transactions? Continue reading
Credit invoices and reliable measurement of cost
I can see where the question arises from. You know you’ll be issued a credit invoice (or you’re fairly certain it will happen) and you question whether you should recognize the asset. Remember here that the conditions for recognizing an asset (as also referenced in IAS 16) are as follows: (1) it is probable that future economic benefits associated with the item will flow to the entity and (2) the cost of the item can be measured reliably. Continue reading
Treating supplier credits for acquired assets
Sometimes it is so that you buy an asset, you start a dispute over the price, but since you really need the asset and you want to use it right away, you start using and accounting for it in your books regardless of the ongoing disputes of the price. What you do, is debit the assets and credit the payables. Continue reading
My property, plant and equipment list – by invoices or by assets
I could ask if you’re using assets or invoices. If the invoices are for unique assets on their own and not one single asset consists of two or more invoices, then sure, let it be. However, there are pitfalls if the latter is not so and some assets comprise of various invoices.
I understand why such a situation would arise – lack of system support, i.e. you keep your list in Excel, lack of time to compile actual assets from all the invoices you’ve capitalized etc. Matter of fact is however that it’s not a preferred way to treat your PPE assets even if it seems perfectly okay for you. Continue reading