FRF7
Syllabus B. ACCOUNTING FOR TRANSACTIONS IN FINANCIAL STATEMENTS B1. Tangible non-current assets

# ACCA FR F7 Syllabus B. ACCOUNTING FOR TRANSACTIONS IN FINANCIAL STATEMENTS - B1a. Initial Recognition of PPE - Notes1 / 7

### Syllabus B1a)

Define and compute the initial measurement of a non-current asset (including borrowing costs and an asset that has been self-constructed)

### When should we bring PPE into the accounts?

#### We recognise (place in the accounts) PPE when:

1. it is RELEVANT to do so and in doing so

2. the item is FAITHFULLY REPRESENTED

3. Meets the definition of an Asset (PPE)

#### What gets included in 'Cost'

1. Directly attributable costs to get it to work and where it needs to be

eg. site preparation, delivery and handling, installation, related professional fees for architects and engineers

2. Estimated cost of dismantling and removing the asset and restoring the site.

This is:
Dr PPE
Cr Liability

All at present value

This will need discounting and the discount unwound:
Dr interest (with unwinding of discount)
Cr liability

3. Borrowing costs

If it is an asset that takes a while to construct.

Interest at a market rate must be recognised or imputed.

### Let's look at the Future obligated costs in detail..

#### Future obligated costs

Dr PPE
Cr Liability

at present value

• The present value is calculated by discounting down at the rate given in the exam

eg. 100 in 2 years time at 10% = 100/1.10/1.10 = 82.6

• So the double entry would be:

Dr PPE 82.6
Cr Liability 82.6

However the LIABILITY needs unwinding..

• Unwinding of discount

Dr Interest
Cr Liability

Use the original discount rate (so here 10%)

10% x 82.6 = 8.26

Dr Interest 8.26
Cr Liability 8.26