CIMA F1 Syllabus B. Financial Statements - Initial Recognition of PPE - Notes 1 / 7
When should we bring PPE into the accounts?
We recognise (place in the accounts) PPE when:
it is RELEVANT to do so and in doing so
the item is FAITHFULLY REPRESENTED
Meets the definition of an Asset (PPE)
What gets included in 'Cost'
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
Labour costs directly attributable to producing the asset are part of its total cost of production.
A reasonable proportion of indirect costs
Production costs may include a reasonable proportion of indirect costs.
Interest on capital borrowed to finance production of the asset
Interest incurred on capitol borrowed to finance product ion of the asset is a relevant production cost when a company is constructing on asset for its own consumption.
The cost of dismantling the production plant which is required at the end of the lease
As the production plant must be dismantled at the end of the lease, the costs of dismantling are included.