Syllabus C. Reporting The Financial Performance Of A Range Of Entities C2. Non Current Assets

C2a. Initial Recognition of PPE 1 / 16

Syllabus C2a)

Discuss and apply the recognition, derecognition and measurement of non-current assets including impairments and revaluations.

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


  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

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