CHAPTER 25: PROPERTY, PLANT &  Cash discounts are reduction of cost NOT

INCOME
EQUIPMENT - Journal entries
 CHARACTERISTICS: GROSS METHOD
- Tangible assets  Acquisition
- Used in business – production/supply, rental, admin Equipment xx
- Used over a period of more than one year A/P xx
 RECOGNITION;  Within discount period
a) future economic benefits to the entity A/P xx
b) cost measured reliably Cash (net amount) xx
 ELEMENTS OF COST Equipment (discount) xx
a) (Purchase price + import + non-refundable tax) less
(discounts and rebates)  Beyond discount period
b) Directly attributable – location and condition A/P xx
 Employee benefits Purchase Discount Lost xx
 Site preparation Cash xx
 Professional fees Equipment xx
 Delivery and condition NET METHOD
 Installation and assembly  Acquisition
 Testing Equipment xx
c) Dismantling, removing, & restoring the site – A/P (net amount) xx
obligation  Within discount period
 EXPENSED A/P xx
- “new” Cash (net amount) xx
- Advertising and promotion  Beyond discount period
- Admin and general overhead A/P xx
- Less than full capacity Purchase Discount Lost xx
- Initial operating losses Cash xx
- Relocating and reorganizing
 AFTER RECOGNITION ACQUISITION ON INSTALLMENT BASIS
- Cost model: Cost less accumulated depreciation and - Cash price (excess = interest to be amortized)
impairment loss - No cash price = present value of all payments
- Revaluation model: Fair value less accumulated - Journal Entries
depreciation and impairment loss  Acquisition with Cash Price
 ACQUISITION OF PROPERTY Machinery (cash price) xx
ACQUISITION ON CASH BASIS Discount on N/P xx
- Cash price equivalent N/P (balance) xx
- Cash paid + freight, installation, etc. Cash (down) xx
- “basket price”/lump sum = apportion  Acquisition without Cash Price
- Computation: Machinery xx
FAIR FRACTION ALLOCATED Discount on N/P xx
VALUE COST N/P xx
ASSET 1 XX X/X XX Cash (down) xx
ASSET 2 XX X/X XX Computation:
Down Payment xx
XX BASKET
PV of NP (PV of 1) xx
PRICE
Cost xx
ACQUISITION ON ACCOUNT
NP xx
- Invoice price minus discount (regardless taken or
PV of NP (xx)
not)
Implied Interest xx
 Not taken = purchase discount lost
 Recorded cost = net amount
 Amortization Table:  Face Amount of BP
DATE PAYMENT INTEREST(% x PV) PRINCIPAL PV Asset (Face) xx
x/x/x1 - - - XX Bonds Payable (Face) xx
x/x/x1 XX - XX = XX XX
x/x/x2 XX - XX = XX XX EXCHANGE
x/x/x3 XX - XX = XX - - Commercial substance: cash flows change
significantly
 Installment Payment - Fair value
N/P xx - Carrying amount if:
Cash xx a) Lacks commercial substance
 Amortization b) Not reliably measurable
Interest Expense xx I. With Commercial Substance
Discount on N/P xx  Silent problems
DATE NP FRACTION INTEREST  Cost
EXPENSE  Journal entries
20x1 XX X/X XX PAYOR
20x2 XX X/X XX Equipment – New xx
20x3 XX X/X XX Accumulated Depreciation xx
XX DISCOUNT Loss on Exchange xx
ON NP Equipment – Old xx
Cash xx
ISSUANCE OF SHARE CAPITAL Computation:
- Order of priority: FV of Asset Given xx
a) FV of Property Received Cash Payment xx
b) FV of Share Capital Cost xx
c) Par value or stated value of the share capital
- Journal Entries FV of Asset Given xx
 FV of Property Received Carrying Amount (xx)
Asset xx Gain (Loss on Exchange) (xx)
Share Capital (Par) xx
Share Premium xx RECIPIENT
 FV of Share Capital Equipment – New xx
Asset (Quoted) xx Accumulated Depreciation xx
Share Capital (Par) xx Cash xx
Share Premium xx Equipment – Old xx
 Par value or stated value of SC Gain on Exchange xx
Asset (Par) xx Computation:
Share Capital (Par) xx FV of Asset Given xx
Cash Received xx
ISSUANCE OF BONDS PAYABLE Cost xx
- Order of priority:
d) FV of Bonds Payable FV of Asset Given xx
e) FV of Asset Received Carrying Amount (xx)
f) Face Amount of BP Gain (Loss on Exchange) xx
- Journal Entries
 FV of Bonds Payable II. No Commercial Substance
Asset (Quoted) xx  Carrying amount
Bonds Payable (Face) xx  No gain or loss
Premium on BP xx  Cash: Add to payor; deduct to recipient
 FV of Asset Received  Journal entries
Asset xx
Bonds Payable (Face) xx
Premium on BP xx
 PAYOR
Equipment – New xx Trade In Value of Asset Given xx
Accumulated Depreciation xx Carrying Amount (xx)
Equipment – Old xx Gain (Loss on Exchange) xx
Cash xx
Computation: DONATION
Carrying Amount xx - Market Value
Cash Payment xx I. From Shareholders
Cost xx  FV to donated capital (Cr)
 Expenses (registration and legal fees) are
RECIPIENT charged to the donated capital account
Equipment – New xx  Do not increase or enhance value of asset
Accumulated Depreciation xx II. From Non-Shareholders
Cash xx  FV when received or receivable
Equipment – Old xx  Subsidies = income (income from donation)
Computation:  Not subsidies = liability account then transferred
Carrying Amount xx to income once initial restrictions are met
Cash Received xx CONSTRUCTION
Cost xx Cost:
1) Direct materials
III. Trade In 2) Direct Labor
 Nondealer acquiring from a dealer 3) Indirect Cost (identifiable) = allocation may be
 Has commercial substance done
 Order of priority: CONSTRUCTED FINISHED TOTAL
a) FV of asset given plus cash payment ASSET GOODS
b) Trade in value of asset given plus cash Materials XX XX XX
payment Labor XX XX XX
 Journal entries Man. XX XX XX
FAIR VALUE APPROACH Overhead
Equipment – New xx XX XX XX
Accumulated Depreciation xx
Loss on Exchange xx DIRECT FRACTION OVERHEAD
Equipment – Old xx LABOR
Cash xx Constructed XX X/X XX
Computation: Asset
FV of Asset Given xx Finished XX X/X XX
Cash Payment xx Goods
Cost xx XX XX

FV of Asset Given xx - Saving or loss

Carrying Amount (xx)  Actual cost < price = saving
Gain (Loss on Exchange) (xx)
 Actual cost > price = not loss (recorded at actual
cost)
TRADE IN VALUE APPROACH
 Incidental operations = profit or loss
Equipment – New xx
- Derecognition
Accumulated Depreciation xx
 Removed from accounts
Equipment – Old xx
 Disposal/no future economic benefit
Gain on Exchange xx
Cash xx  Difference of net disposal proceeds and carrying
Computation: amount
Trade In Value of Asset Given xx - Fully depreciated
Cash Received xx  Carrying amount is equal to 0 or salvage value or
Cost xx residual value
PROPERTY CLASSIFIED AS HELD FOR SALE DEPRECIABLE ASSET
 Within 1 year; available for immediate sale - Allocated: proportion to the depreciation
 Current asset - Journal entries
 Lower of carrying amount or fair value less cost of  Received grant
disposal Cash xx
 Not depreciated Deferred Grant Income xx
IDLE OR ABANDONED PROPERTY  Acquire asset
 Not held for sale Building xx
 Temporary idle = PPE (still depreciates) Cash xx
OPTIONAL DISCLOSURES  Depreciation Expense
 Carrying amount of temporary idle Depreciation xx
 Gross carrying amount of fully depreciated Accumulated Depreciation xx
 Carrying amount of PPE held for sale retired from  Recognize income
active use Deferred Grant Income xx
Grant Income xx
 Cost model: materially different
NONDEPRECIABLE ASSET
CHAPTER 26: GOVERNMENT GRANT - Allocated: cost of meeting the conditions
 Assistance: transfer of resources in return for future - Journal entries
compliance with certain conditions relating to  Received grant
operating activities Land xx
 Fair value if: entity will comply Deferred Grant Income xx
: grant will be received  Construct asset
 Income over the periods Refinery xx
 Classifications Cash xx
- Grant related to asset: purchase, construct or *Depreciation and income same years*
acquire long-term asset COMPENSATION
 Deferred income - Financial support
 Deducting the grant in arriving at the carrying - Journal entries
amount  Income immediately
- Grant related to income: “others” Cash xx
 Separately or “other income” Grant Income xx
 Grant is deducted from expense APPROACH FOR PRESENTATION
SPECIFIC EXPENSES I. DEFERRED INCOME APPROACH
- Allocated: specific expenses over the period of the  Acquisition
related expenses Equipment xx
- Journal entries Cash xx
 Received grant  Deferred Income
Cash xx Cash xx
Deferred Grant Income xx Deferred Grant Income xx
 Recognize income  Depreciation Expense
Deferred Grant Income xx Depreciation xx
Grant Income xx Accumulated Depreciation xx
 Incur expenses  Recognize income
Environmental Expenses xx Deferred Grant Income xx
Cash xx Grant Income xx
Computation:
EXPENSES FRACTION GRANT II. DEDUCTION FROM ASSET APPROACH
INCOME - Allocated: proportion to the depreciation
20X1 XX X/X XX - Journal entries
20X2 XX X/X XX  Acquisition
20X3 XX X/X XX Equipment xx
XX XX Cash xx
  Deduction - Journal entries
Cash xx  Received grant
Equipment xx Cash xx
 Depreciation Expense Discount on Notes Payable xx
Depreciation xx Note Payable xx
Accumulated Depreciation xx Deferred Grant Income xx
REPAYMENT  Amortization
- Noncompliance = change in accounting estimate Interest Expense xx
I. GRANT RELATED TO INCOME Discount on Notes Payable xx
- Unamortized deferred income first  Recognize income
- Excess = expense Deferred Grant Income xx
 Entry Grant Income xx
Deferred Grant Income xx  Paid (End)
Loss on repayment of grant xx Notes Payable xx
Cash xx Cash xx
CHAPTER 27: BORROWING COST
II. GRANT RELATED TO ASSET
 In connection with borrowing of funds; includes:
- Increasing carrying amount
a) Interest expense
 Deferred Income Approach
b) Finance charge
Deferred Grant Income xx
c) Exchange difference (foreign currency)
Loss on repayment of grant xx
 Qualifying asset – substantial period of time to get
Cash xx
ready for the intended use or sale
Depreciation Expense xx
 Excluded from capitalization:
Accumulated Depreciation xx
a) Fair value (biological assets)
Computation:
b) Repetitive basis (ex. Maturing whiskey)
Building xx
Accumulated Depreciation (xx) c) Ready for intended use/sale when acquired
Carrying Amount – 12/31 xx  PAS 23 mandates:
- Borrowing cost directly attributable: capitalized as
 Deduction from asset Approach cost of the asset
Building xx - Other borrowing costs (not directly attributable):
Cash xx expensed
Depreciation xx  Commencement of capitalization
Accumulated Depreciation xx - When conditions are met:
Computation: a) Incurs expenditure
Depreciation on original carrying amount xx b) Incurs borrowing cost
Depreciation on increased carrying amount xx c) Undertakes activities to prepare asset intended
Total Depreciation xx for use/sale
 Ex. Technical and admin work
Building xx  Development activity
Accumulated Depreciation (xx)  Suspension of capitalization
Carrying Amount – 12/31 xx - Suspension = active development is interrupted
- Not normally suspended = substantial technical and
GRANT OF INTEREST-FREE LOAN admin work carried out
- Forgivable loan: reasonable assurance that the - Not also suspended = temporary delay is a necessary
entity will meet the terms of forgiveness part of the process
- Amortization table - Continues = delay is caused by common occurrence
AMORTIZATION DISCOUNT ON NP PV (previous PV in geographical region
(%) (previous –
amortization)
+ amortization)
 Cessation of capitalization: substantially activities
1/1/X1 - XX XX necessary are complete
12/31/X1 XX XX XX  Disclosures
12/31/X2 XX XX XX a) Amount of borrowing cost
12/31/X3 XX XX XX
b) Capitalization rate
 CONSTRUCTION PERIOD MORE THAN ONE YEAR
ASSET FINANCED BY SPECIFIC BORROWING - Group it by year muna
- Specifically for the purpose of acquiring a qualifying - Computation:
asset 20x1 Actual Expenditures in 20x1 xx
- Computation: Capitalizable B.C. in 20x1:
Actual Borrowing Cost xx Specific (𝑥𝑥 × %) xx
Interest Income from investment proceeds (xx) General (𝑥𝑥 × %) xx
Capitalizable Borrowing Cost xx Total cost of new bldg to date xx

ASSET FINANCED BY GENERAL BORROWING 20x2 Cumulative Actual Expenditures in 20x2 xx

- Generally; used for acquiring a qualifying asset Capitalizable B.C. in 20x2:
- Capitalizable borrowing cost shall not exceed the Specific (𝑥𝑥 × %) xx
actual interest incurred General (𝑥𝑥 × %) xx
- Investment income is not deducted Total cost of new bldg xx
- Computations
DATE EXPENDITURES MONTHS AVERAGE MORE THAN 1 YEAR BUT LESS THAN 2 YEARS
OUTSTANDING DATE EXPENDITURE FRACTION AVERAGE
Jan 1 XX 12/12 XX Jan 1 XX 8/8 XX
Mar XX 9/12 XX Jul 1 XX 2/8 XX
31 XX XX
Jun XX 6/12 XX Cumulative Actual Expenditures in 20x2 xx
30 Capitalizable B.C. in 20x2:
Sep XX 3/12 XX Specific (𝑥𝑥 × %) xx
30 General (𝑥𝑥 × %) xx
Dec XX - - Total cost of building xx
31
Average Carrying Amount XX SPECIFIC BORROWING FOR ASSET USED FOR GENERAL
𝑇𝑜𝑡𝑎𝑙 𝑎𝑛𝑛𝑢𝑎𝑙 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 PURPOSES
Capitalization Rate =
𝑇𝑜𝑡𝑎𝑙 𝑔𝑒𝑛𝑒𝑟𝑎𝑙 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔
- Specific but a portion is for working capital purposes
Capitalizable borrowing cost =
- General borrowing = determining capitalizable
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑎𝑚𝑜𝑢𝑛𝑡 × 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒
borrowing cost
*not exceed the actual cost*
ASSET FINANCED BOTH BY SPECIFIC AND GENERAL CHAPTER 28: LAND & BUILDING
BORROWING  Land account
- Computations I. STATEMENT CLASSIFICATION
DATE EXPENDITURES MONTHS AVERAGE - Used as a plant site = PPE
(actual - Held for a currently undetermined use =
OUTSTANDING
expenditures)
Jan 1 XX 12/12 XX Investment Property
Mar 31 XX 9/12 XX - Definitely as a future plant size = PPE
Jun 30 XX 6/12 XX - Held for current sale = Inventory (current asset)
Sep 30 XX 3/12 XX II. COSTS CHARGEABLE TO LAND
Dec 31 XX - - - Purchase price
Average Expenditures XX - Legal fees and other expenditures (clean title)
- Broker or agent commission
Average Expenditures xx - Escrow fees
Specific borrowing xx - Registration and transfer
General Borrowing xx - Relocation or reconstruction
- Mortgages, exncumbrances and interest
Specific borrowing xx - Unpaid taxes up to date of acquisition
General Borrowing (xx) - Cost of survey
Total Capitalizable B.C. xx - Tenants: vacate; not to make room for new
building
- Permanent improvements
- Option to buy the acquired land
 III. LAND IMPROVEMENTS - Unusable = Land only
- Not subject to depreciation = Land Account II. DEMOLISHED IMMEDIATELY
- Depreciable = Land Improvements - Usable = loss if old building is PPE/Investment
IV. SPECIAL ASSESSMENTS Property
- Taxes paid by landowners = cost of land - Usable = capitalized to new building if old
 Increase definitely the value building is inventory
V. REAL PROPERTY TAXES - Demolition cost minus salvage = capitalize the
- Real property taxes = Expense new whether PPE/Investment
- Unpaid and assumed in acquisition = capitalized Property/Inventory
 Building account - Net demolition cost = capitalized to land
I. WHEN PURCHASED (COST) III. PRIOR PERIOD USED BUT DEMOLISHED
- Purchase price - Carrying amount of old building = loss
- Legal fees and other expenses in connection - Net demolition cost = capitalized to new building
- Unpaid taxes - Contract lease = charged to cost of new building
- Interest, mortgage, liens and other CHAPTER 29: MACHINERY
encumbrances I. COST OF MACHINERY
- Tenants to vacate - Purchase price
- Renovating or remodeling - Freight, handling, storage and other directly
II. WHEN CONSTRUCTED - Insurance while in transit
- Direct material, direct labor, factory overhead - Installation
- Building permit or license - Testing and trial run
- Architect fee - Dismantling, removing, restoring (with present
- Superintendent fee obligation)
- Excavation - Fee to consultants
- Temporary buildings - Safety rail and platform
- Loans and insurance: expenses during - Water device
construction
 Removed and retired to make room = Expense
- Service equipment and fixture: permanent part
 VAT = not capitalizable (input tax and the offset)
- Temporary safety fence (permanent = land
 Irrecoverable or non-refundable tax = Capitalized
improvement)
II. TOOLS
- Safety inspection fee
- Machine = drills and punches
III. SIDEWALKS, PAVEMENTS, PARKING LOT,
- Hand = hammer and saws
DRIVEWAYS
III. PATTERNS AND DIES
- Part of blueprint = Building account
- Regular = assets
- Occasionally made or incurred not in connection
- Special = cost of special
= Land improvements
IV. EQUIPMENT
IV. CLAIMS FOR DAMAGES
- Delivery: cars, trucks, etc.
- Insurance taken = charged to building
 Registration fees = expensed
 Necessary and reasonable cost
- Store and office: computers, cash register, etc.
- Insurance not take = Expensed
 Selling function = store
 Management failure or negligence
- Furniture and Fixture
V. BUILDING FIXTURES
V. RETURNABLE CONTAINERS
- Immovable = Building
- Big units/great bulks = PPE
- Movable = Furniture and Fixtures
- Small and individually = other noncurrent assets
VI. VENTILATING SYSTEM, LIGHTING SYSTEM,
- Not returnable = expense
ELEVATOR
VI. CAPITAL VS. REVENUE EXPENDITURE
- Installed during construction = Building
- Current period = revenue expenditure = expense
- Otherwise = Building improvements
- Current and future = capital expenditure = asset
 Depreciation = useful life or remaining life (w/c
VII. SUBSEQUENT COSTST
shorter)
a) Future economic benefits flow to the entity
 PIC Interpretation on Land and Building - Extends the life
I. PURCHASED AT A SINGLE COST - Increases capacity
- Usable = allocated based on FV
 - Improves efficiency and safety
b) Cost can be measured reliably
- Increase = capitalized
- Maintains = expense
 Additions: increase physical
- New unit: depreciation useful life
- Expansion: depreciation expansion/remaining
(w/c is shorter)
 Improvements or betterments: increase service life
- Better or superior = capitalized
 Replacements: substitution (not better)
- Replace old by a new asset
- Major parts/extra ordinary
- Minor parts/ordinary
 Repairs: restore to good condition
- Extraordinary = large sums = capitalized
- Ordinary = small sums = expense
 Maintenance = keeps good condition
 Rearrangement cost: relocation/redeployment
- Expensed as incurred = maintains level
VIII. ACCOUNTING FOR MAJOR REPLACEMENT
- Practicable = asset
 Cost of part and accumulated depreciation of
part = removed
 Remaining = loss
- Not practicable = cost of replacement (discounted)
SEPARATE IDENTIFICATION IS PRACTICABLE
- Journal entries
 Eliminate original cost
Loss on retirement of building xx
Accumulated Depreciation xx
Building
 Replacement
Building xx
Cash
 Subsequent annual depreciation
Depreciation xx
Accumulated Depreciation
- Computation:
Building xx
Accumulated Depreciation (xx)
Carrying Amount – 12/31 xx
Annual Depreciation (xx/x) xx
SEPARATE IDENTIFICATION IS NOT PRACTICABLE
- Journal entries
 Eliminate cost
Loss on retirement of building xx
Accumulated Depreciation xx
Building (PV) xx
 Replacement
Building xx
Cash xx
 Subsequent annual depreciation
Depreciation xx
Accumulated Depreciation xx
- Computation:
Building (xx-xx+xx) xx
Accumulated Depreciation (xx-xx) (xx)
Carrying Amount – 12/31 xx
Annual Depreciation (xx/x) xx
CHAPTER 30: DEPRECIATION –
STRAIGHT LINE AND VARIABLE
 Allocated to expense:
a) Depreciation – PPE
b) Depletion – Wasting Assets
c) Amortization – Intangible Assets
 Systematic allocation of the depreciable amount of
an asset over the useful life
 Cost allocation: exhaustion of the useful life
 Period benefiting from the use of the asset
 Expense: cost of goods manufactured & operating
expense
- Unless it is included in the carrying amount of
another asset
 Depreciation period
- Begins = available for use (location and condition)
- Ceases = derecognized
xx  PFRS 5: held for sale = discontinued
 Kinds of depreciation
- Physical
 Wear and tear (frequent use)
 Passage of time (non-use)
xx  Action of the elements (wind, sunshine, etc.)
 Casualty or accident (fire, flood, etc.)
 Disease or decay
xx - Functional or economic
 Inadequacy – no longer useful because of
increase in the volume of operations
 Supersession – new asset available can
perform the same function efficiently
 Obsolence – no future demand (encompasses
inadequacy and supersession)
 Factors of depreciation
1) Depreciable amount
- Cost less residual value
- Part that is significant in relation to the total
cost is depreciated separately
 2) Residual value - Composite –dissimilar
- Net amount currently obtainable at the end of - Group – similar
the useful life - Accounting procedures
- Reviewed at least annually at year-end a) Not related to a specific asset
- Change = change in accounting estimate b) Composite/group rate is multiplied by the total
- If residual value ≥ carrying amount → residual cost
value = 0 c) Retired = no gain or loss
- If residual value does not exceed the carrying Accumulated Depreciation xx
amount Asset xx
3) Useful life – period available for use or number
of production expected d) Replaced by a similar asset
a. Time periods Asset xx
b. Output Cash xx
c. Service hours *afterwards, rate x balance = periodic depreciation*
 Factors 𝑇𝑜𝑡𝑎𝑙 𝑎𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
𝐶𝑜𝑚𝑝𝑜𝑠𝑖𝑡𝑒 𝑅𝑎𝑡𝑒 =
- Expected usage (capacity or physical output) 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
- Expected physical wear and tear (repair & 𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
𝐶𝑜𝑚𝑝𝑜𝑠𝑖𝑡𝑒 𝐿𝑖𝑓𝑒 =
maintenance; care while idle) 𝑇𝑜𝑡𝑎𝑙 𝑎𝑛𝑛𝑢𝑎𝑙 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
- Technical or commercial substance (market  Retirement of asset in the group
demand) Cash xx
- Legal limits (expiry date of related lease) Accumulated Depreciation xx
 Service life – useful life Asset xx
 Physical life – how long asset shall last  No proceeds from retirement
 Depreciation method Accumulated Depreciation xx
- Reviewed year-end Asset xx
- Significant change = change in accounting estimate 𝑁𝑒𝑤 𝑎𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
1) Equal or uniform = 𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 × 𝑐𝑜𝑚𝑝𝑜𝑠𝑖𝑡𝑒 𝑟𝑎𝑡𝑒
a. Straight line method VARIABLE CHARGE OR ACTIVITY METHODS
b. Composite method - Function of use
c. Group method - Depreciate more rapidly if fulltime or overtime
2) Variable charge or use-factor or activity methods - Direct relationship between utilization and realization
a. Working hours or service hours of revenue
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑏𝑙𝑒 𝑎𝑚𝑜𝑢𝑛𝑡
b. Output or production method 1) 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 ℎ𝑜𝑢𝑟𝑠 𝑚𝑒𝑡ℎ𝑜𝑑 = 𝐻𝑜𝑢𝑟𝑠
3) Decreasing charge or accelerating or diminishing 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑏𝑙𝑒 𝑎𝑚𝑜𝑢𝑛𝑡
2) 𝑂𝑢𝑡𝑝𝑢𝑡 𝑚𝑒𝑡ℎ𝑜𝑑 = 𝑂𝑢𝑡𝑝𝑢𝑡
balance
a. Sum of years digits CHAPTER 31: DEPRECIATION – SYD &
b. Declining balance method
c. Double declining method
DECLINING
 Decreasing charge or accelerated methods (higher
4) Other methods
depreciation in earlier years; lower depreciation in
a. Inventory or appraisal
later years)
b. Retirement method
c. Replacement method  More revenue earlier
STRAIGHT LINE METHOD  Cost of using – includes depreciation and repairs
- Allocating equally  Repair cost = systematic and uniform basis
- Constant charge  3 decreasing charge methods
- Passage of time a) Sum of years digits
- Simplicity b) Declining balance
𝐶𝑜𝑠𝑡 − 𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 c) Double declining
𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = SUM OF YEARS’ DIGITS
𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒 𝑖𝑛 𝑦𝑒𝑎𝑟𝑠
100% 𝐴
𝑆𝑡𝑟𝑎𝑖𝑔ℎ𝑡 𝐿𝑖𝑛𝑒 𝑅𝑎𝑡𝑒 = 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 = × 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑏𝑙𝑒 𝑎𝑚𝑜𝑢𝑛𝑡
𝐿𝑖𝑓𝑒 𝑖𝑛 𝑦𝑒𝑎𝑟𝑠 𝐵
*A = remaining life
COMPOSITE AND GROUP METHOD
*B = SYD
- Many individual assets as a single asset
 𝐿𝑖𝑓𝑒 + 1 Cash xx
𝑆𝑌𝐷 = 𝐿𝑖𝑓𝑒 ( )
2  Replacement
Sum of half years digits = multiply life by 2  Depreciation xx
*Consider calendar year and acquisition date  Tools
DOUBLE DECLINING BALANCE METHOD xx
- Balance = Book Value - Computation
200% Replacement cost of tools retired xx
𝑅𝑎𝑡𝑒 =
𝐿𝑖𝑓𝑒 Proceeds from retirement (xx)
- Fixed rate is multiplied by declining carrying amount Depreciation xx
- Approximation of declining
- Declining (mathematical formula) vs. Double  Change in useful life
Declining (Straight line x 2) - Unexpected physical deterioration or
- 150% declining = fixed rate is 150% technological improvement = useful life <
INVENTORY METHD estimated
- Estimating value - Improved maintenance procedures or revision =
- Depreciation = balance of asset – value at the end prolong the useful life
- No accumulated depreciation → Credited directly to - Adjusted
asset - Computation:
- Asset: small and relatively inexpensive Cost xx
- It is not systematic Accumulated Depreciation (xx)
- Journal entries Carrying Amount – 1/1 xx
 Acquisition Annual Depreciation - New (xx/new life) xx
Tools xx  Change in Depreciation method
Cash xx - Solve for latest carrying amount then apply new
 Sale method
Cash xx -
Tools xx
 Depreciation
CHAPTER 32: DEPLETION
Depreciation xx  IFRS 6: exploration and evaluation of mineral
Tools xx resources
- Computation  Search after legal right; exploration and evaluation
Balance of tools account xx before technical feasibility and commercial viability
Inventory tools – 12/31 (xx)  Do not include: before legal right; after technical
Depreciation xx feasibility and commercial viability
 Exploration and evaluation expenditures
RETIREMENT METHOD - Acquisition of rights
- No depreciation until retired - Studies
- Depreciation = cost minus salvage proceeds - Drilling
- Journal entries - Trenching
 Acquisition - Sampling
Tools xx - Evaluating feasibility and viability
Cash xx - General and administrative costs directly
 Retirement attributable
Cash xx  Initially at cost → subsequent at cost/revaluation
Depreciation xx model
Tools (FIFO) xx  Wasting assets are physically consumed and
REPLACEMENT METHOD irreplaceable
- No depreciation until retired and replaced  Cost of wasting asset
- Depreciation = replacement cost minus salvage - Acquisition cost
proceeds  Price paid to obtain
- Journal entries  Initial cost
 Acquisition  Residual land value: may be included (land is a
Tools (excess of retirement) xx separate account)
  Land value: residual value
 Depletable amount: deducted from cost Original estimate of deposit xx
- Exploration cost Extracted in first year (xx)
 Before feasibility and viability Remaining estimate of deposit xx
 Methods
a) Successful effort method (large companies): Depreciation rate per unit (xx/xx) x
unsuccessful = expensed
b) Full cost method (small entities): capitalized Depreciation for current year(xx/x) xx
whether successful or unsuccessful  Trust fund doctrine vs. wasting asset doctrine
- Development cost - Trust fund doctrine
 Incurred to exploit or extract  Share capital of a corporation: trust fund for
 Tangible: not capitalized; depreciated the protection of creditors; capital cannot be
 Intangible: capitalized returned to shareholders
- Estimated restoration cost  Can pay dividends: only to the balance of
 Bring property to original condition retained earnings
 Added to cost OR “netted” against residual  Cannot pay dividend: if corporation has deficit
value - Wasting asset doctrine
 PAS 16: capitalized only when incurs the  Wasting asset corporation: can legally return
obligation capital to shareholders
 Must be an existing present obligation and  Can pay dividend: not only retained earnings
discounted also extent of accumulated depreciation
 Systematic allocation of a wasting asset over the  Excess of retained earnings: accounted as
period resource is extracted or produced liquidating dividend or return of capital
USUALLY OUTPUT OR PRODUCTION METHOD  Journal entry
𝐷𝑒𝑝𝑙𝑒𝑡𝑎𝑏𝑙𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 Retained earnings xx
𝐷𝑒𝑝𝑙𝑒𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 =
𝑈𝑛𝑖𝑡𝑠 𝑡𝑜 𝑏𝑒 𝑒𝑥𝑡𝑟𝑎𝑐𝑡𝑒𝑑 Capital liquidated xx
Depletion (% per unit x units extracted) xx Dividends payable xx
Accumulated Depletion xx *Accumulated depreciation – not charged
- Income Statement: Depletion = Cost of Sales because it is not a source of dividend (only for
- Financial Position: Separate line item purposes of determining how much can be
Resource deposit, at cost xx legally returned
Accumulated Depletion (xx) * Capital liquidated – deduction from
Carrying Amount xx shareholders equity
REVISION OF DEPLETION RATE  Computation
Original cost of wasting asset xx Retained earnings xx
Additional cost in subsequent year xx Add: Accumulated depletion xx
Total xx Total xx
Capital liquidated in prior years xx
Accumulated depletion (xx) Unrealized depletion in ending inventory xx xx
Remaining depletable amount xx Maximum dividend xx
New depletion rate per unit (xx/xx) xx
DEPRECIATION OF MINING PROPERTY
- Depreciation of equipment: life of equipment vs. life
CHAPTER 33: REVALUATION
 Initially at cost; subsequently at cost/revaluation
of wasting asset (w/c is shorter)
model
 If equipment life is shorter = straight line
 Basis of revaluation
 If wasting asset life is shorter = output method
1) Fair value - appraisal
- Shutdown
2) Depreciated replacement cost – market value is
 Output method cannot be used
not available
 Based on remaining life; straight line method
 Depreciated replacement cost – replacement cost
 Computation (if operations resume after
minus depreciation; sound value
shutdown)
 Revaluation surplus – fair value minus carrying
Equipment, at cost xx
amount; revaluation increment
Accumulated depreciation (xx + xx) (xx)
 Appreciation – revaluation increase
Carrying amount xx
  Computation: Original useful life Accumulated depreciation xx
Accumulated depreciation – cost xx Revaluation surplus xx
Divide by: age of asset x  Annual depreciation
Annual depreciation xx Depreciation xx
Asset at cost xx Accumulated depreciation xx
Divide by: annual depreciation on cost xx Computation:
Original useful life x Revised useful life x
Age of machinery (x)
PROPORTIONAL APPROACH Remaining revised useful life x
- Depreciation is restated proportionately with the Depreciation on cost (xx/x) xx
change in gross carrying amount Depreciation on appreciation (xx/x) xx
COST REPLACEMENT APPRECIATION Total depreciation xx
COST (RC – COST)  Piecemeal realization
Asset XX XX XX Revaluation surplus xx
Acc. Dep. XX XX XX Retained earnings xx
CA/SV/RS XX XX XX
Journal entry for revaluation: REVERSAL OF REVALUATION SURPLUS
Machinery xx - Revaluation decrease: revaluation surplus to the
Accumulated depreciation xx extent of a previous revaluation and the balance is
Revaluation Surplus xx charged to expense
ELIMINATION APPROACH - Computation:
- Depreciation is eliminated against the gross Equipment xx
carrying amount Acc. Dep. (xx + xx) (xx)
Accumulated depreciation is offset against carrying Depreciated Replacement cost xx
amount: Revaluation surplus (xx-xx) xx
Accumulated depreciation xx Journal entry:
Machinery xx Accumulated depreciation xx
Machinery account is then adjusted: Revaluation surplus xx
Machinery xx Revaluation loss xx
Revaluation surplus xx Equipment xx
Computation for entry: (refer to values under
Sound value xx decrease)
Debit balance in machinery (xx) PER BOOK ADJUSTED DECREASE
Revaluation surplus xx Replacement XX XX XX
cost
Acc. Dep. XX XX XX
*Piecemeal realization of revaluation surplus: annual
Depreciated
realization through retained earnings replacement
Revaluation surplus xx cost XX FAIR VALUE XX
Retained earnings xx
CHANGE IN LIFE AND RESIDUAL VALUE SALE OF REVALUED ASSET
COST REPLACEMENT APPRECIATION
 Sale
COST
Asset
Cash xx
XX XX XX
Residual value NEW NEW - Accumulated depreciation xx
Depreciable XX XX XX Asset xx
amount Gain on sale of asset xx
Accumulated Old salvage; New salvage; XX
depreciation old life old life Computation for entry:
Remaining Sale price xx
depreciable
amount XX XX XX Carrying amount (xx)
- Journal entries; Gain on sale of asset xx
 Revaluation surplus
 Revaluation
Machinery xx Revaluation surplus xx
Retained earnings xx
 *same computation for impairment loss and same
CHAPTER 34: IMPAIRMENT OF ASSET entry*

– INDIVIDUAL ASSET REVERSAL OF AN IMPAIRMENT LOSS

 Impairment – fall in market value where *solve for impairment
recoverable amount < carrying amount Asset xx
 Asset shall not be carried above the recoverable Accumulated depreciation (xx + xx) (xx)
amount Adjusting carrying amount xx
 If carrying amount cannot be recoverable in full Depreciation for 2020 (xx)
→write down Carrying amount with impairment xx
 Carrying amount > recoverable → impairment loss Journal entry for impairment reversal
 Issues to consider Accumulated depreciation xx
a) Indication of possible impairment Gain on reversal of impairment xx
 External sources Computation:
- Decrease or decline in market value Carrying amount – no impairment xx
- Change in environment of the business Carrying amount – with impairment (xx)
- Increase in the interest rate or market rate Gain on reversal of impairment xx
- Carrying amount is more than the market *Carrying amount – no impairment = would have
capitalization ( CA exceeds the FV) been carrying amount as though it were not
 Internal sources impaired
- Obsolescence or physical damage
- Manner or extent used CHAPTER 35: IMPAIRMENT OF ASSET
- Evidence economic performance will be used
b) Measurement of the recoverable amount – CASH GENERATING UNIT(CGU)
 Fair value less cost of disposal (exit price or  Smallest identifiable group of assets that generate
selling price) vs. Value in use (w/c is higher) cash inflows that are independent from other assets
c) Recognition of impairment loss  Recoverable amount is determined individually; if
 Entries and computations not possible determine recoverable amount of the
GENERALLY CGU
Impairment loss xx  PAS 36 – impairment loss is allocated to:
Accumulated depreciation xx a) Goodwill
Computation for values: b) Then to noncash assets (pro-rata based on their
Carrying amount xx carrying amount)
Recoverable amount (xx) GENERALLY (no goodwill)
Impairment loss xx *after allocation of impairment
Journal entry for impairment loss:
USING FUTURE CASH FLOWS Impairment loss xx
Accumulated depreciation – building xx
YEAR REVENUE COSTS, NET CASH
EXCLUDING
Land (non-depreciable) xx
FLOWS Accumulated depreciation – equipment xx
DEP’N
20X1 XX - XX = XX Inventory (non-depreciable) xx
20X2 XX - XX = XX
20X3 XX - XX = XX WITH INDICATED EXIT PRICE OF AN ASSET
XX - XX = XX - PAS 36 Paragraph 105: carrying amount of an asset
shall not be reduced below the recoverable amount
YEAR (a) (b) (a x b)  Otherwise: impairment is allocated to the other
NET CASH PV of 1 PV assets of the CGU
FLOWS  Reallocate the loss to the other assets
20X1 XX XX XX *same entry
20X2 XX XX XX
20X3 XX XX XX CGU WITH GOODWILL
XX VALUE IN USE - PAS 36: CGU is tested for impairment at least
annually
 a) Recoverable amount exceeds carrying amount =
not impaired
b) Carrying amount exceeds recoverable amount =
recognize impairment loss
Journal entry for impairment loss:
Impairment loss xx
Goodwill (allocated to GW first) xx
Accumulated depreciation xx
REVERSAL OF IMPAIRMENT LOSS ON GOODWILL
- PAS 36: impairment loss recognized for goodwill shall
not be reversed in a subsequent period
CHAPTER 36: INTANGIBLE ASSETS –
GOODWILL
 PAS 38: intangible asset - identifiable nonmonetary
asset without physical substance
 Essential criteria
a) Identifiability: separable and arises from
contractual or other legal rights
b) Control: power to obtain the future economic
benefits and restrict access
c) Future economic benefits: benefits resulting
from the use of the asset by the entity
 Recognition
a) Probable future economic benefits
b) Cost can be measured reliably
- Judgement: degree of certainty (based on
external evidence)
 Initial measurement (at cost)
SEPARATE ACQUISITION
- Cost = purchase price + import and non-refundable
taxes + directly attributable
- Expensed immediately: “new”, administration and
other general overhead, has yet to be brought into
use, initial operating loss
ACQUISITION AS PART OF A BUSINESS COMBINATION
- Fair value on the date of acquisition
ACQUISITION BY WAY OF A GOVERNMENT GRANT
- Either fair value or nominal amount + expenditure
directly attributable
ACQUISITION BY EXCHANGE
- Fair value of the asset given plus any cash payment
- Lacks commercial substance: carrying amount of
asset given plus any cash payment
ACQUISITION BY SELF-CREATION OR INTERNAL
GENERATION
- Costs
a) Materials and services generating intangible
asset
b) Employee benefits from generation of
intangible asset
c) Fees to register a legal right
d) Amortization of patents and licenses
- PAS 38: internally generated brands, mastheads,
publishing titles, customer lists and items similar in
substance = not intangible
 Identifiable vs. unidentifiable (ex. goodwill)
- Identifiable: transfer of legal right; could be
sold/transferred/licensed/rented separately
- Unidentifiable – identified with the entity as a
whole
 Classification
a) Intangible assets with definite life – amortize;
useful life vs. legal life (w/c is shorter)
b) Intangible assets with indefinite life – do not
amortize but test for impairment
 Amortization and impairment of intangible assets
- Amortization: systematic allocation of the
amortizable amount over the useful life (Dr
Amortization expense; Cr Intangible asset account)
- Method: reflect the pattern in w/c future
economic benefits are consumed (if cannot be
determined then use straight line method)
 Derecognition: on disposal of the asset or when no
future economic benefits are expected (Proceeds
less Carrying amount = Gain or Loss)
 Goodwill – most intangible and identified with the
entity as a whole
- Arises when earnings exceed normal earnings by
reason of good name (reputation, responding
promptly and helpfully, and personality of the
staff)
- Continually changing
- Recognition:
a) Developed or internal goodwill: “homegrown”
and not recorded
b) Purchased goodwill: been paid for and
recognized
RESIDUAL APPROACH
- Compares purchase price with the net tangible and
identifiable assets (meaning excluding goodwill)
- Net assets at fair value
- Excess of purchase price and fair value of net assets =
goodwill
Purchase price xx
Net assets acquired at fair value (xx)
Goodwill xx
Journal entry to record the purchase
Cash xx
Accounts Receivable xx
Inventory xx
PPE xx
Patent xx
Goodwill xx Gain on bargain purchase xx
Accounts Payable xx
Notes Payable xx
Accrued liabilities xx
CHAPTER 37: IDENTIFIABLE
Cash xx INTANGIBLE ASSETS
 Patent
DIRECT APPROACH: GENERALLY - Exclusive right granted to an inventor to control
- Requires following information: the use of invention for a specified period of time
a) Normal rate of return - Legal life = 20 years (R.A. No. 8293)
b) Fair value of tangible assets and identifiable - Cannot be renewed but can be extended
intangible assets - Technology-based intangible asset
c) Estimated future normal earnings - Cost = purchase price + import duties + non-
d) Probable duration of any “excess earnings” refundable taxes + directly attributable cost of
DIRECT APPROACH – METHOD 1: Purchase of “average preparing for intended use
excess earnings - Internally developed (went through R & D):
Average earnings xx includes licensing and legal fees
Normal earnings (xx) - Research and development: expensed (time of
Average excess earnings xx technological feasibility development cost =
Goodwill (average excess x no. of years) xx capitalized)
- Cost of litigation
DIRECT APPROACH – METHOD 2: Capitalization of  Successful = expensed (intended to maintain)
“average excess earnings”  Unsuccessful = written off as loss
Average excess earnings xx - Amortization
Divide by: capitalization rate %
 Internally developed = legal vs. useful (w/c is
Goodwill xx
shorter)
 Acquired from a patentee = legal vs. useful (w/c
DIRECT APPROACH – METHOD 3:Capitalization of
is shorter)
“average earnings”
 Competitive patent (protect) = remaining life of
Average earnings xx
old patent
Divide by: capitalization rate %
 Related patent (extend) = extended life; no
Net assets, including goodwill xx
extension = own life (remainder of its life)
Net assets, excluding goodwill (S.H.E.) xx
 Development of patent
Goodwill xx
Research and development expense xx
Cash xx
DIRECT APPROACH – METHOD 4: Present value method
 Licensing of patent
IMPAIRMENT
Patent xx
Average excess earnings xx
Cash xx
Multiply by: PV factor x
 Amortization
Goodwill xx
Amortization of Patent xx
Patent xx
NEGATIVE GOODWILL
 Successful defense
Purchase price xx
Legal expenses xx
Net assets acquired at fair value (xx)
Cash xx
Negative goodwill (xx)
 Acquisition of competing patent
Cash xx Patent xx
Accounts Receivable xx Cash xx
Inventory xx  Update amortization of patent
PPE xx Patent xx
Patent xx Cash xx
Accounts Payable xx Computation:
Notes Payable xx Original patent xx
Accrued liabilities xx Competing patent(xx/x) xx
Cash (Purchase price) xx Total xx
  Write off patent - Contract based intangible asset
Patent written-off xx - Between government and private entity: use public
Patent xx property
PATENT - Between private entities: use trademark, patent
Original XX Amortization XX and process
cost - Cost = lump sum payment + directly attributable
Competing XX Amortization XX - Lump sum payment = initial franchise fee
patent - Periodic payment (periodic franchise fee) =
Amortization XX expense
Amortization XX - Amortization
Write - off XX  Definite period = useful life vs. definite life (w/c
XX XX is shorter)
PERIODIC FRANCHISE FEE
- Impairment Franchise fee expense (%) xx
Impairment Loss xx Cash xx
Patent xx INITIAL FRANCHISE FEE
Computation:  Initial franchise fee
Carrying amount xx Franchise xx
PV of cash flows (value in use) (xx) Cash xx
Impairment Loss xx Note payable xx
 First installment
 Trademark Note payable xx
- Symbol, sign, slogan or name to distinguish Interest expense xx
- Market-related intangible asset Cash xx
- Purchased: price + directly attributable  Amortization
- Internally developed: expenditures to establish Amortization of Franchise xx
- Successfully prosecuted: outright expense Franchise xx
(maintain)
- Legal life = 10 years
- May be renewed → indefinite life → not amortized  Lease Right
- Impairment - IFRS 16
Impairment Loss xx - Initially recognize a right of use (separate line item)
Patent xx asset and a lease liability
Computation: - Leasehold improvement: not cost; alteration and
Carrying amount xx modification
PV of cash flows (value in use) (xx) - Residual value of leasehold improvement: ignored
Impairment Loss xx - Renewal option: too uncertain = ignored
- Renewal of the lease contract = highly probable pr
 Copyright certain
- Exclusive right to the author, composer or artist to
benefit  Broadcasting license
- Artistic related intangible asset - Indefinite useful life
- Cost = expenses required to establish or obtain  Expires in 5 years
right  Renewable
- Purchased: cash paid plus directly attributable  May be renewed indefinitely at little cost
- Term for protection = during the life and 50 years  Contribute to net cash inflows indefinitely
after death - Definite useful life
- Reviewed for impairment  Expires in 3 years
- Amortization: useful life benefits, sales and  Will no longer renew but will auction the license
royalties are expected  Continue to contribute to net cash inflows
 Cannot be renewed
 Franchise  Should be amortized over remaining useful life
- Franchisor grants to a franchisee
 Airline right  Internally developed computer software
- Renewed every 5 years - Creating a computer software = expense until
- Routinely granted at a minimal cost technical feasibility
- Indefinite useful life = not amortized - So much uncertainty = expensed
 Customer list - Costs that actually produce the software from
- Database masters and package the software for sale =
- PAS 38: internally generated is not intangible asset inventory
- Acquired customer list: may be intangible and is  Amortization – finite useful life
amortized over useful life  Impairment – tested whenever there is an indication
- Purchase does not provide control by an entity of impairment at year-end
 Organization cost  Classification of computer software
a) Legal fees a) Intangible
b) Incorporation fees b) For resale = inventory
c) Share issuance cost c) Purchased as an integral part = PPE
- PAS 38: start up costs that include legal and d) Not an integral part = intangible
secretarial costs = expense
 Organization cost = expensed
 Share issuance costs = Dr to share premium
(excess = Dr to share issuance cost)
 Web site development cost
- Does not meet the requirement to be recognized
as an intangible asset
- Expensed as incurred

CHAPTER 38: RESEARCH AND

DEVELOPMENT COST – COMPUTER
SOFTWARE
 Research
- Original and planned investigation with prospect of
gaining scientific or technical knowledge and
understanding
- To discover new knowledge
- PAS 38: expenditure on research = expense (too
much uncertainty)
 Development
- Application of research findings
- Probability of success may be more apparent
- Criteria:
 Technical feasibility of completing when a
prototype or model is produced
 Intention to complete the intangible asset and
use or sell it
 Ability to use or sell
 Produce probable future economic benefits
 Availability of resources or funding
 Ability to measure reliably the expenditure
 R & D can be capitalized if it has an alternative future
use
 Activities – prior to beginning of commercial
production (if it relates to commercial production =
do not result to R & D cost)