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Property, Plant & Equipment - Coggle Diagram
Property, Plant & Equipment
About
Objectives And Scope
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Proper accounting treatment of an entity's property, plant, and equipment
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Recognition
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All costs initially incurred to acquire or construct an asset are recognized as part of the cost of the asset.
:star:Spare parts, Standby Equipment, and Servicing Equipment can be classified as either PPE or inventory depending on their intended use and frequency of use.
If these items are intended to be used in the production of goods or services and are expected to have a useful life of more than one year, they are classified as PPE.
If they are intended to be sold or consumed within a year, they are classified as inventory.
:star:Safety and environmental costs, while not directly increasing economic benefits, are necessary to ensure that the entity obtains future economic benefits from its other assets.
Therefore, these costs also meet the recognition criteria and must be recognized.
makes sense because PPE is defined as an economic resource that is expected to generate future economic benefits, and ensuring its safe and sustainable use is necessary to fulfill that expectation.
SUBSEQUENT COSTS
Parts/components that are replaced regularly can be recognized as separate costs and the old parts must be derecognized when replaced.
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Day-to-day servicing costs such as repairs and maintenance are expensed and recognized in the profit and loss (P/L) statement.
Initial Measurement
Examples of costs that are recognized as part of the cost of the asset when acquiring or constructing it:
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PPE (Property, Plant, and Equipment) typically uses the historical cost basis as its initial cost basis.
the cost basis may be adjusted for depreciation or impairment, which reflect changes in the asset's value over time.
=Cost
Direct Costs +
These are the costs incurred to bring the asset to its present condition and location for its intended use
Assets dismantling, removal, and restoration costs +
Costs incurred by a company when it needs to remove, dismantle, or restore a fixed asset that is no longer needed or has reached the end of its useful life.
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Excluded Costs
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Cost incurred when asset is ready for use and has not been brought into use as intended or does not run at full capacity.
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