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 Tangible Assets
 Used in business (production/supply of goods and services, for rental and for admin purposes)
 Expected to be used for more than one year

Bio Assets and Mineral Rights and Reserves are not PPE.
→ apply PAS 16 for PPE used to develop or maintain bio assets and mineral rights & reserves
 Probable future economic benefits
 Cost of the asset can be measured reliably

Cost of PPE
→ cost incurred to acquire/construct PPE
→ cost incurred subsequently to add to, replace part of, or service it
→ Spare parts & Servicing Equipment
 Normally carried as inventory and expensed as consumed
 If major spare parts and stand-by equipment, qualify as PPE if used for more than one year
→ depreciated over a time period not exceeding the useful life of related asset
→ Safety and Environmental Equipment
 Not directly increasing the future economic benefit of any existing PPE
 Necessary to obtain the future economic benefit from the asset in EXCESS of what it could
obtain if such equipment had not been acquired
 Recognize as PPE

Measurement @ Recognition
→ initially measured at COST
 Purchase price including import duties and nonrefundable purchase taxes net of trade discount
& rebates whether taken or not
 Cost directly attributable to bringing the assets to the location and condition for it to be capable
of operating
→ cost of employee benefits from construction/acquisition of PPE
→ cost of site preparation
→ initial delivery & handling costs
→ installation and assembly cost
→ professional fees
→ cost of testing whether asset is functioning properly net of proceeds from selling any
items produced during testing (samples)
 Initial estimate of costs of dismantling & removing the item & restoring the site on which it is
→ the obligation for which the entity incurs when the item is acquired or as a
consequence of having used the item

Modes of Acquisition
Mode Cost of equipment
Acquisition on Cash Basis Cash price equivalent @ recognition date plus directly
attributable costs

 Lump sum price Allocate based on relative fair value of assets acquired
Acquisition on Account Invoice price minus discount (whether taken or not)
Acquisition on Installment Basis Cash price equivalent
 If there is cash price given @ cash price (if installment price > cash price, recognize as
interest to be amortized over credit period

 No available cash price Present value of all payments using implied interest rate
Issuance of Share Capital a. Fair value of asset received
b. Fair value of the share capital
c. Par value/stated value of the share capital
Issuance of Bonds Payable a. Fair value of bonds payable
b. Fair value of asset received
c. Face value of bonds payable
→ acquisition in exchange of nonmonetary asset or
combination of monetary and nonmonetary

*Commercial substance – if expected cash flows after the

exchange differ significantly from the expected cash flow
before the exchange

With commercial substance: (gain/loss fully recognized)

 No cash involved a. Fair value of asset given
b. Fair value of asset received
c. Carrying amount of asset given

 Cash is involved a. Fair value of asset given plus cash payment (payor)
b. Fair value of asset given minus cash received

No commercial substance (no gain/loss) Carrying amount of asset given up +/- cash received/paid

*Trade in – nondealer acquiring asset from a dealer;

usually involves significant amount of cash; exchanging
property as part of payment and the balance payable in

a. Fair value approach Fair value of asset given plus cash payment

b. Trade in value approach (if FV of asset given Trade in value of asset given plus cash payment
can’t be determined)
 From shareholders Fair value of items received (credit to donated capital)
*Expenses related to the donation (registration fees and
legal fees) are added to donated capital
*Expenses directly attributable to the asset is added to
asset account

 From nonshareholders
→ if subsidy Fair value of asset/item received (credit to income
→ if not subsidy (with restriction) Fair value of asset/item received (credit to liability account
until restrictions are met where it is transferred to income)
Construction Includes:
1. Direct cost of materials
2. Direct cost of labor
3. Indirect cost traceable to production
→ if not specifically identifiable, allocate overhead
based on direct labor cost/hours

*Income/loss from operations during construction NOT

necessary to bring the item to location/condition for its
intended use is not capitalized but is recognized in profit or

 Removal of cost of PPE with related accumulate depreciation
 Upon disposal or when it is fully depreciated
 Gain/Loss on disposal shall be included in profit or loss
 Gain/Loss on disposal = Net disposal proceeds – Carrying amount of asset

Fully depreciated property

 When carrying amount is equal to zero or equal to residual value
 Do not remove accounts of fully depreciated PPE still used in service

Property classified as held for sale

 Asset is available for immediate sale within one year from date of classification as held for sale
 Exclude from PPE but present as current asset
 Measured at lower of carrying amount or fair value less cost to sell
 Not depreciated

Idle or abandoned property

 Do not classify as held for sale
 Carrying amount would be recovered through continuing use
 Does not preclude depreciating the asset as future benefits are consumed not only through usage but also
through wear and tear and obsolescence
 To be included in PPE until the end of its economic life

Optional Disclosures
 CA of temporarily idle PPE
 Gross CA of any fully depreciated PPE still in use
 CA of PPE retired from active use and classified as held for sale
 When cost model is used, the FV of PPE when this is materially different from the CA

Government Grant (PAS 20)

→ assistance by gov’t in form of transfer of resources to an entity in return of past or future compliance with
certain conditions relating to the operating activities of the entity.
→ sometimes called as subsidy, subvention, premium

 given by the government
 in return for past or future compliance with conditions

Recognition and Measurement

 Measured at FAIR VALUE including nonmonetary grants
 Recognized if there is reasonable assurance that:
→ the entity will comply with the conditions
→ the grant will be received
 Receipt of the grant does not of itself provide conclusive evidence that the conditions have been or will be
 Shall NOT be recognized on a CASH BASIS

a. Grant related to asset
→ condition is that the entity shall purchase, construct, or acquire long-term asset
b. Grant related to income
→ grant other than related to asset

Accounting for Government Grants

Reason for grant Pattern for Recognition of Income
Recognition of specific expenses (safety and Over the period of the related expense (prorate)
environmental expenses)
Related to depreciable asset (acquisition or construction Over the periods and in proportion to the depreciation of
of buildings) related asset (divide by the useful life of related asset if
using straight-line method)
Related to nondepreciable asset (land) Over the periods which bear the cost of meeting the
As compensation for expenses or losses already ncurred Income on the period which it became receivable
or for the purpose of giving immediate financial support
with no further related costs

Presentation of Government Grant

If related to asset:
a. As deferred income
b. Deducting the grant in arriving at the carrying amount of the asset (lower depreciation expense)
If related to income:
a. As other income in I/S
b. Deducted from the related expense

Repayment of Government Grant

→ due to noncompliance with conditions
→ change in accounting estimate (prospectively)
If related to income:
a. Repayment shall be applied first against any unamortized deferred income
b. Any excess shall be recognized immediately as an expense

Deferred income-government grant xxx

Loss on government grant xxx
Cash xxx

If related to asset:
a. Repayment shall be recorded by increasing the carrying amount of the asset
b. Cumulative depreciation that would have been recognized to date in the absence of the grant shall be
recognized immediately as an expense

Deferred income approach:

Deferred income-government grant xxx

Loss on government grant xxx
Cash xxx

Depreciation xxx
Accumulated Depreciation xxx
(Cumulative depreciation not recognized)

Deduction from asset approach:

Building xxx
Cash xxx

Depreciation xxx
Accumulated Depreciation xxx

Grant of Interest-free Loan

→ Difference between face amount of the loan and the present value is recognized as discount on note payable
and grant income to be amortized over the term of the loan using effective interest method
→ Interest expense (discount amortized) and grant income may be offset against the other (zero interest
expense each year)

Government Assistance
→ action by the government to provide economic benefit specific to an entity or range of entities under certain
→ the essence is that NO VALUE can reasonably be placed upon government assistance such as
a. Free technical or marketing advices
b. Provision of guarantee
c. Government procurement policy that is responsible for a portion of the entity’s sales

a. Accounting policy adopted including method of presentation in FS
b. Nature and extent of grant recognized and indication of other forms of gov’t assistance from which the entity
has directly benefited
c. Unfulfilled conditions and other contingencies attaching to government assistance that has been recognized

Name of the government agency that gave the grant is NOT REQUIRED to be disclosed along with the date of sanction
and date when cash is received.

Borrowing Cost (PAS 23)

→ interests and other costs that an entity incurs in connection with borrowing funds

Accounting for borrowing costs

1. If borrowing is directly attributable to the acquisition, construction, or production of a QUALIFYING ASSET,
borrowing cost is capitalized as part of the cost of the asset (MANDATORY)
2. All other borrowing cost shall be expensed as incurred if NOT directly attributable to a qualifying asset
3. Excluded from capitalization are:
a. Assets measured at FAIR VALUE, such as bio asset
b. Inventories produced in large quantities on a repetitive basis even if they take substantial period of time to
get ready for sale
c. Assets that are ready for intended use or sale when acquired
Qualifying Asset
→ an asset that necessarily takes a substantial period of time to get ready for its intended use such as
a. Manufacturing plant
b. Power generation facility
c. Intangible Assets
d. Investment Property

Types of Borrowing
a. Specific borrowing
→ funds borrowed specifically for the purpose of acquiring a qualifying asset
b. General borrowing
→ funds borrowed are generally AND used for acquiring a qualifying asset

Accounting Treatment for Borrowing Costs

For specific borrowing:
a. Capitalize the actual borrowing cost incurred during the period
b. Deduct any investment income from temporary investment of the funds
For general borrowing:
→ Do NOT DEDUCT any investment income from temporary investment of funds
a. Compute the average expenditures/carrying amount of the asset (if given amount is incurred evenly during the
year, just divide it by 2)
Date Expenditure Months Outstanding Amount
Jan 1 400,000 12 4,800,000
Mar 31 1,000,000 9 9,000,000
June 30 1,200,000 6 7,200,000
Sep 30 1,000,000 3 3,000,000
Dec 31 400,000 0 0 .
Total 24,000,000/12
Average carrying amount 2,000,000

b. Compute capitalization rate or average interest rate

Total annual borrowing cost/total general borrowings outstanding
c. Multiply average carrying amount of the asset by the capitalization rate.
d. Capitalizable borrowing cost shall NOT EXCEED the actual borrowing cost. (Use whichever is lower)
For both specific and general borrowing:
a. Compute the actual borrowing cost for the specific borrowing then capitalize
b. Compute the average expenditures/carrying amount of the asset
c. Deduct from the average expenditure the amount of specific borrowing incurred
d. Compute capitalization rate
e. Multiply net average expenditures by the capitalization rate
f. Capitalizable general borrowing cost shall NOT EXCEED the actual general borrowing cost. (Use whichever is

Construction for more than one year

→ use the same procedure for the first year
→ the beginning balance of expenditures for the second year shall include the capitalized borrowing cost from first year
→ use the same procedure of computation for the second year

Specific Borrowing for asset used for general purposes

→ treated as general borrowing in determining capitalizable borrowing cost

Commencement of capitalization
Capitalize borrowing cost when the following three conditions are present:
a. When the entity incurs expenditures for the asset
b. When the entity incurs borrowing costs
c. When the entity undertakes activities necessary to prepare the asset for the intended use or sale
→ Activities necessary to prepare asset encompass more than physical construction of the asset (includes technical and
administrative work prior to commencement of physical construction such as drawing up plans and obtaining permits)
→ Merely holding the asset for use or development without any associated development activity does NOT QUALIFY
for capitalization

Suspension of Capitalization
→ if due to temporary delay which is a necessary part of the process of getting an asset ready for its intended use,
continue capitalization of borrowing costs (eg. Period of high water levels that delay the construction of a bridge if such
high water level is common during construction period in the geographical region involved.)

Cessation of Capitalization
→ Ceases when substantially all the activities necessary to prepare the asset are complete

a. Amount of borrowing costs capitalized during the year
b. Capitalization rate used
Segregation of qualifying assets from other assets in FS is NOT REQUIRED to be disclosed

Land Account
→ recognize as PPE if:
a. Used as a plant site
b. Held definitely as a future plant site
→ other uses of land not recognized under PPE:
a. For currently undetermined future use (investment property)
b. Held for long term capital appreciation (investment property)
c. Held for current sale by a real estate developer (inventory)

Costs chargeable to land

a. Purchase price
b. Legal fees and other expenditures for establishing clean title
c. Broker’s 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 interests on such assumed by the buyer
h. Unpaid taxes up to date of acquisition assumed by the buyer (in general, outright expense)
i. Cost of survey
j. Payments to tenants to vacate the LAND
k. Cost of permanent improvements such as cost of grading, leveling and landfill
l. Cost of option to buy the acquired land, If land is not acquired, cost of option is expensed
m. Special assessments made by gov’t (increase the value of land)

Land Improvements
→ if additions to cost not subject to depreciation, charge to land account
→ if land improvements are depreciable, charge to land improvement such as
a. Fences
b. Water system
c. Drainage system
d. Sidewalks
e. Pavements
f. Cost of trees, shrubs and other landscaping
→ depreciate over their useful life

Building Account
If purchased
a. Purchase price
b. Legal fees and other expenses incurred in connection to the purchase
c. Unpaid taxes up to date of acquisition
d. Interest, mortgage, liens and other encumbrances on the building assumed by buyer
e. Payments to tenants to induce them to vacate building
f. Any renovating or remodeling costs incurred to put a building purchased in a condition suitable for its intended
If constructed
a. Materials used, labor employed and overhead incurred during construction
b. Building permit or license
c. Architect fee
d. Superintendent fee
e. Cost of clearing and demolishing unwanted old structures, less proceeds from salvage
f. Payments to tenants to induce them to vacate building
g. Cost of excavation
h. Cost of temporary buildings used as construction offices and tools or materials shed
i. Expenditures incurred during the construction period such as interest on construction loans and insurance
j. Expenditures for service equipment and fixtures made permanent part of the structure
k. Cost of temporary safety fence around construction and cost of subsequent removal thereof (permanent fence
is a land improvement)
l. Safety inspection fee

Sidewalks, pavements, parking lot, driveways

→ if part of the blueprint for the construction of the building, charge to Building
→ if expenditures are occasionally made or incurred not in connection with the construction of a new building, charge to
Land Improvements

Claims for Damages

→ if insurance is taken during construction of a building, charge to Building
→ claims for damages when there is no insurance for injuries sustained during construction, expense outright (it is due
to management’s negligence)

Building Fixtures
→ immovable shelves, cabinets, and partitions (attached to the building), charge to Building
→ movable shelves, cabinets, and partitions, charge to Furniture and Fixtures (depreciated over its useful life)

Ventilating system, lighting system, elevator

→ installed during construction, charge to Building
→ otherwise, charge to Building Improvements (depreciated over their useful life or remaining life of building,
whichever is shorter)

New Provision (PIC Interpretation approved June 2013)

1. Acquisition of Land & Old Building @ a single cost
a. Single cost is allocated based on fair value if the old bldg. is by itself useable
b. Single cost is allocated to the LAND ONLY if the old building is unuseable and therefore to be demolished

2. Old building is demolished immediately to make room for the construction of the new building
a. The allocated carrying amount of the old building is charged to loss if the new building is accounted for as
PPE or investment property
b. The allocated carrying amount of the old building is capitalized as cost of the new building if the latter is
accounted for as inventory
c. The cost of demolition net of salvage value (including payment to tenants to vacate premises) is capitalized
as cost of building

3. If an old building owned by the company is to be demolished to make room for the construction of the new
a. The carrying amount of the old building is recognized as loss whether the new building is accounted for as
PPE, investment property, or inventory
b. The cost of demolition net of salvage value is capitalized as cost of the new building

Costs chargeable to machinery are as follows:
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 costs necessary in preparing the machinery for its intended use
f. Initial estimate of cost of dismantling and removing the machinery and restoring the site on which it is located,
and for which the entity has a present obligation (required to be capitalized by law or contract)
g. Fee paid to consultants for advice on the acquisition of the machinery
h. Cost of safety rail and platform surrounding the machine
i. Cost of water device to keep machine cool
→ if machinery is moved to new location, the undepreciated cost of old installation cost is expensed and the new
installation cost is charged to new asset
→ if machinery is remover and retired to make room for the installation of a new one, the removal cost NOT previously
recognized as a provision is charged to expense not capitalizable
→ VAT on the purchase of machinery is not capitalizable but charged to input tax to be offset against output tax. Any
irrevocable purchase tax is capitalized as cost of the asset.

→ machine tools are those used in connection with the operation of machines
→ hand tools are those not used in operating the machines
→ segregated from the machinery account

Patterns and dies

→ used in designing or forging out a particular product
→ if used for the regular products, recorded as asset (depreciated over their useful life)
→ if used for specially ordered products, expensed outright (form part of the cost of the special product)

→ includes delivery equipment, store equipment, office equipment, furniture and fixtures, and similar assets
→ Delivery equipments
 Cars
 Trucks
 Other vehicles used in business operations
 Motor vehicle registration fees → expensed outright
→ Store and Office equipment
 Computers
 Typewriters
 Adding machines
 Cash registers
 Calculators
 For selling function → store equipment
→ Furnitures & Fixtures
 Showcases
 Counters
 Shelves
 Display Fixtures
 Cabinets
 Partitions
 Safes
 Desks
 Tables

Returnable containers
→ bottles, boxes, tanks, drums, barrels, and similar items returned to the seller by the buyer when contents are
→ if containers are in big units or of great bulks (tanks, drums, barrels) → PPE
→ if containers are in small units and individually involve small amounts (bottles and boxes) → Other Noncurrent Assets
→ if not returnable → expense outright

Capital Expenditures Revenue Expenditures

Expenditure that benefits current and future periods Expenditure that benefits current period only
Capitalizable cost Expense outright

Recognition of subsequent cost

→ if will increase future service potential of the asset → capitalized
→ if it merely maintains the existing level of performance → expensed

Future Economic Benefit

 Extends the life of the property
 Increases the capacity of the property and quality of output
 Improves efficiency and safety of the property

Subsequent Costs
Additions → modifications or alterations which increase the physical
size or capacity of the asset
 An entirely new unit → capitalized; depreciated over its useful life

 An expansion, enlargement, or extension of the → capitalized; depreciated over its useful life or remaining
old asset life of the asset of which it is a part, whichever is shorter
Improvement or Betterments → modification or alterations which increase the service
life or the capacity of the asset
→ may represent replacement of an asset or a part thereof
with one of a better or superior quality
→ capitalized
→ if it do not involve replacement of parts, simply added
to cost of existing asset
Replacements → substitution but the new asset is not better than the old
asset when acquired
→ replacement is a substitution of an equal or lesser

 Replacement of old asset by new asset → capitalizable as a new asset

 Replacement of major parts → extraordinary repairs, capitalized
 Replacement of minor parts → ordinary repairs, expensed outright
Repairs →expenditures used to restore assets to good operating
condition upon their breakdown or replacement of broken
 Extraordinary Repairs → material replacement of parts, involving large sums and
normally extend the useful life of asset; capitalized
 Ordinary Repairs (Maintenance) → minor replacement of parts, involving small sums and
are frequently encountered; expensed
Rearrangement Cost → relocation or reinstallation of an asset which proves to
be less efficient in its original location
→ normally increases the future potential of the asset;
→ if it merely maintains the existing level of performance;

Accounting for major replacement

 Separate identification of the part is practicable
→ debit to asset account
→ cost of the part eliminated and related accumulated depreciation are removed and the carrying
amount of the old part is treated as a loss

Eliminate original cost of the part

Loss on retirement of asset xxx
Accumulated Depreciation xxx
PPE xxx

Record the Replacement

PPE xxx
Cash xxx

Record Subsequent Annual Depreciation

Depreciation xxx
Accumulated Depreciation xxx

Assets original cost xxx

Less: Cost of part replaced (xxx)
Add: Cost of replacement xxx
Less: Accumulated depreciation (related to old part excluded) (xxx)
Carrying amount xxx
Divided by remaining life /n
Annual depreciation (new) xxx

 Separate identification is not practicable

→ use the cost of the replacement as an indication of the “likely original cost” of the replaced part at the time it
was acquired (current replacement cost shall be discounted to estimate original cost of replaced part)
→ same accounting procedure with above
Cost allocation in recognition of the exhaustion of useful life of an item
→ depreciation → PPE
→ depletion → wasting asset
→ amortization → intangible assets

Depreciation Period
→ begins → when it is available for use (asset is in the location and condition necessary for it to be capable of
→ ceases → when asset is derecognized
→ temporary idle activity DOES NOT PRECLUDE depreciating the asset
→ if asset is classified as held for sale, discontinue depreciation

Kinds of Depreciation
a. Physical depreciation → related to depreciable asset’s wear and tear and deterioration over a period
→ results to the ultimate retirement of the property or termination of the service of the asset
1. Wear and tear due to frequent use
2. Passage of time due to nonuse
3. Action of the elements such as wind, sunshine, rain or dust
4. Accidents such as fire, flood, earthquake and other natural disaster
5. Disease → physical cause is due to animals and wooden buildings

b. Functional or economic depreciation → arises from obsolescence or inadequacy of the asset to perform
1. Obsolescence arise due to the following:
a. When there is no future demand for the product which the depreciable asset produces
b. When a new depreciable asset becomes available and can perform the same function for
substantially lesser cost
2. Inadequacy arises when asset is no longer useful to the firm because of increase in the volume of

Factors of depreciation
a. Depreciable amount
b. Residual value → may be equal to carrying amount where dep’n will be zero until it becomes lower than CA but
never it becomes MORE THAN the carrying amount of the asset
c. Useful life

Methods of Depreciation

1. Equal or Uniform charge methods

a. Straight Line →

b. Composite Method (Assets are dissimilar in

a. Depreciation is reported in single accumulated
c. Group Method (Assets are similar in nature)
depreciation account
b. Composite or group rate is multiplied by the total
cost of the asset in the group to get periodic
c. When an asset is retired, no gain or loss is
reported. The asset account is credited for the cost
of the asset retired and the accumulated
depreciation account is debited for the cost minus
salvage proceeds
d. When the retired asset is replaced by a similar
asset, the replacement is recorded by debiting the
asset account and crediting cash or other
appropriate account
2. Variable charge or use-factor methods
a. Working hours or service hours
b. Output or production method
3. Decreasing charge or accelerated or diminishing
balance method
( )
a. Sum of years’ digits

Annual depreciation= SYD fraction x Depreciable Amount

a.1 Sum of half years’ digits (eg. 2 ½ years) → multiply life by 2 to get “life” (eg. 2 ½ times 2 = 5 years)
→ use two fractions for 1 year (one fraction = 6 months)
(eg. 5/15 and 4/15)

a.2 Fractional depreciation (eg. acctg period is → compute per years’ depreciation then prorate based on
from March 1 to February 28) calendar period (annual depreciation x 9/12)

b. Declining balance method → √

*n = useful life
Depreciation = Rate x Declining Carrying Amount

c. Double declining balance →

*n = useful life
Depreciation = Rate x Declining Carrying Amount
d. 150% declining balance

*n = useful life
Depreciation = Rate x Declining Carrying Amount
4. Other methods

a. Inventory or appraisal (assets with small value → Depreciation = Balance of asset account, beginning less
such as tools) Value at the end of the year

b. Retirement method (depreciation only when → Depreciation = Original cost of asset – Salvage Value

c. Replacement method (depreciation only when → Depreciation = Replacement Value – Salvage Value
retired and replaced)

Change in Useful Life or Residual Value or DepreciationMethod(Prospectively)

→ depreciation charge for the current and future periods shall be adjusted
→ past depreciation is not corrected
→ shall be reviewed at least at each financial year-end
→ change in accounting estimate
Wasting Asset (PFRS 6)
Revaluation and Impairment

Accounting method for PPE

1. Cost Method
2. Revaluation Method

Cost Method Revaluation Method

If: If:
Carrying Amount < Recoverable amount = No Impairment Carrying Amount > Revalued Amount = Revaluation Loss or
Loss Impairment Loss
Carrying Amount > Recoverable amount = Impairment Loss Carrying Amount < Revalued Amount = Revaluation
Recoverable amount = Fair value less cost to sell or Value
in Use whichever is HIGHER Revalued amount = Fair Value or Depreciated replacement
Fair Value less Cost to sell
→ Fair Value → price that would be received to sell an Fair Value
asset → Fair Value → price that would be received to sell an
→ Cost to sell → incremental cost directly attributable to asset
the disposal of an asset excluding finance cost and income
tax expense Depreciated Replacement Cost
Fair Value Hierarchy → replacement cost of asset minus corresponding
1. Quoted price of identical asset in an active market depreciation (sound value of asset)
2. Quoted price of similar asset in an active market
3. Quoted price for identical/similar asset in inactive Cost Replacement Appreciation
market Cost
4. Price developed by the entity using best Original Cost Replacement +/-
information from entity’s own data Cost
(Salvage Value)* (Salvage Value) -
Value in Use Depreciable Depreciable -
→ present value or discounted value of future NET cash Amount Amount
flows (inflow minus outflow) expected to be derived from (Accumulated (Accumulated +/-
the asset using pretax cash flow and pretax discount rate Depreciation)** Depreciation)
Carrying Value Sound Value +/-
Entries: *Salvage Value → use new if there is change in SV; use old
Impairment Loss xxx if there is no change in SV
Goodwill (if any) xxx **Accumulated Depreciation → based on original amount
Acc. Depreciation xxx
Nondepreciable Asset xxx Entries:
Revaluation Surplus
Depreciation will be based on RECOVERABLE AMOUNT PPE xxx
Acc. Depreciation xxx
Revaluation Surplus xxx

Revaluation Decrease
Acc. Depreciation xxx
Revaluation Loss xxx
Machinery xxx

Depreciation will be based on SOUND VALUE

Reversal of Impairment Loss Reversal of Revaluation Increase

If recoverable amount of previously impaired asset turns If asset’s carrying amount is decreased as a result of
out to be higher than the asset’s current carrying amount, revaluation, decrease is an expense
the carrying amount is increased to its new recoverable
amount Rules:
Revaluation decrease should be applied first against any
Rules: revaluation surplus then the excess to
The increase in carrying amount shall not exceed the revaluation/impairment loss
carrying amount that would have been determined had no
impairment loss been recognized in prior years Entries:
Acc. Depreciation xxx
Reversal of impairment loss shall be recognized Revaluation Surplus (if any) xxx
immediately as an income in P&L Revaluation Loss xxx
Machinery xxx
Any impairment loss recognized for goodwill shall not be
reversed in subsequent periods. Reversal of Revaluation Decrease
If asset’s carrying amount is increased as a result of
Entries: revaluation, increase is a revaluation surplus
Acc. Depreciation xxx
Gain on reversal of impairment xxx Rule:
Revaluation increase should be recognized first as
revaluation gain(P&L) to the extent of previously
recognized revaluation loss then the excess to revaluation

PPE xxx
Acc. Depreciation xxx
Revaluation Gain xxx
Revaluation Surplus xxx
Impairment Loss Revaluation Surplus

Impairment loss is part of income statement as an expense Revaluation surplus is part of other comprehensive income

Realization in whole → when asset is derecognized

(retirement or disposal)

Realization in part → in proportion with depreciation

(revaluation surplus/remaining life of asset)

Realization of revaluation surplus transfers it to retained