PROPERTY, PLANT & EQUIPMENT Property, plant and equipment are tangible assets that are held by an enterprise

for use in production or supply of goods or services, for rental to others, or for administrative purposes, and are expected to be used during more than one period. Components of cost: a. Purchase price b. Import duties c. Non-refundable purchase taxes d. Cost of site preparation e. Initial delivery and handling cost (freight) f. Installation cost g. Professional fees of architects and engineers h. Estimated cost of dismantling and removing the asset and restoring the site, to the extent that it is recognized as a provision. Examples of costs which are expensed rather than recognized as component of the cost of property, plant and equipment are: a. Administration and other general overhead costs b. Start-up and similar preproduction costs, unless they are necessary to bring the asset to its working condition c. Initial operating losses incurred prior to an asset achieving planned performance COSTS CHARGEABLE TO LAND a. Purchase price b. Legal fees and other expenditures for establishing clean title c. Brokers commission d. Escrow fees e. Fees for registration and transfer of title f. Cost of relocation or reconstruction of property belonging to others in order to acquire possession g. Mortgages, encumbrances and interest on such mortgages assumed by buyer h. Unpaid taxes up to date of acquisition assumed by buyer i. Cost of survey j. Cost of clearing and demolishing unwanted old structures, less proceeds from salvage k. Payments to tenants to induce them to vacate the premises l. Cost of permanent improvements (cost of grading, levelling and other landscaping) m. Cost of option to buy the acquired land. If the land is not acquired, the cost of option is expensed outright.

COSTS CHARGEABLE TO BUILDING WHEN PURCHASED a. Purchase price b. Legal fees and other expenses incurred in connection with the purchase c. Unpaid taxes up to date of acquisition d. Interest, liens and other encumbrances on the building assumed by the buyer e. Payments to tenants to induce them to vacate the building f. Any renovating or remodeling costs incurred to put a building purchased in a condition suitable for its intended use such as lighting installations, partitions and repairs COSTS CHARGEABLE WHEN CONSTRUCTED a. Materials used, labor employed and overhead incurred during the construction b. Building permit or license c. Architect fee d. Superintendent fee e. Cost of excavation f. Cost of temporary buildings used as construction offices and tools or materials shed g. Expenditures incurred during the construction period such as interest on construction loans and insurance h. Expenditures for service equipment and fixtures made permanent part of the structure COSTS CHARGEABLE TO MACHINERY a. Purchase price b. Freight, handling, storage and other cost related to the acquisition c. Insurance while in transit d. Installation cost, including site preparation and assembling e. Cost of testing and trial run, and other cost necessary in preparing the machinery in use Example: 1. Purchased office equipment worth Php50,000 less 10-5, 50% down payment, 20% issued promissory note, 2/10, 1/15, n/30 for the remaining. Freight costs Php5,000, FOB shipping point, collect. 42,493. 50 21,375. 00 12,568. 50 8,550.0 0

Office Equipment Cash Accounts Payable Notes Payable

2/10, 1/15, n/30 5,000.0 0 5,000.0 0

Office Equipment Accounts Payable FOB shipping point, prepaid

Original price Less: 1st trade discount (50,000 x 0.10) Net amount Less: 2nd trade discount (45,000 x 0.05) List price/invoice price Less: Promissory note (42,750 x 0.20) Downpayment (42,750 x 0.50) Accounts payable @ gross of cash discount Less: Cash discount (12,825 x 0.02) Accounts payable to be recorded

50,000. 00 5,000.0 0 45,000. 00 2,250.0 0 42,750. 00 8,550.0 0 21,375. 00 12,825. 00 256.50 12,568. 50 8,550.0 0 21,375. 00 12,568. 50 42,493. 50

Promissory note Downpayment Accounts payable recorded Acquisition cost of office equipment

2. Returned office equipment amounting to Php10,000. 9,800.0 0 9,800.0 0

Accounts Payable Office Equipment To record return of office equipment

Cost of returned office equipment Less: Cash discount (10,000 x 0.02)

10,000. 00 200.00

Cost of returned office equipment to be returned 3. Made partial payment of Php500. Accounts Payable Cash Partial payment

9,800.0 0

500.00 500.00

4. Paid account in full within 10 days. 7,268.5 0 7,268.5 0

Accounts Payable Cash Full payment 5. Paid account in full within 15 days

Accounts Payable Discounts Lost Cash Full payment

7,268.5 0 28.25 7,296.7 5

Accounts payable @ gross of cash discount Les Returns & Allowances @ gross of cash s: discount Basis for cash discount Cash discount lost (2,825 x 0.01) 6. Paid account in full beyond 15 days

12,825. 00 10,000. 00 2,825.0 0 28.25

Accounts Payable Discounts Lost Cash Full payment

7,268.5 0 56.50 7,325.0 0

Accounts payable @ gross of cash discount Les Returns & Allowances @ gross of cash s: discount Basis for cash discount Cash discounts lost (2,825 x 0.02)

12,825. 00 10,000. 00 2,825.0 0 56.50

References: Financial Accounting by Atty. Conrado T. Valix & Jose F. Peralta