Property Plant and Equipment

PROPERTY, PLANT AND EQUIPMENT I. Major Characteristics a. Tangible assets (with physical substance) b. Used in business – production or supply of goods or services, for rental purposes, and for administrative purposes c. Expected to be used for a period of more than one year Examples  Property not subject to depreciation – e.g., land  Property subject to depreciation – e.g., building, machinery, equipment, furniture, fixtures, leasehold improvements II. Initial Recognition a. Should comply with recognition criteria for assets – i.e., reliable measure of cost and probable flow of future economic benefits b. Measured at cost – amount of cash or cash equivalent paid and the fair value of any consideration given to acquire an asset at the time of acquisition or construction 1. Purchase price 2. Cost directly attributable to bringing asset to location and condition necessary for it to be capable of operating in the manner intended by management 3. Initial estimate of costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which the entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. Exclusions from cost (i.e., expensed as incurred)  Costs of opening a new facility  Costs of introducing a new product or service, including costs of advertising and promotion  Costs of conducting business in a new location or with a new class of customers, including staff training costs  Administration and other general overhead costs  Costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full capacity  Initial operating losses  Costs of relocating or reorganizing part or all of an entity’s operations

Initial Recognition Issues and Examples

Costs Chargeable to Land – purchase price; legal fees and