Property, Plant & Equipment: Q2

Q2:  How do we value Property, plant & equipment when we first acquire it?

A:

Property, plant and equipment is valued and recorded in the balance sheet at its historical cost when it is acquired:

“An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at cost.”

AASB 116 Property, Plant and Equipment para 15

The cost of an item of Property, plant and equipment includes all those costs that are required to make the asset suitable for the purpose for which it is intended:

“The cost of an item of property, plant and equipment comprises:

(a)    its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates;

(b)    any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management; and

(c)     the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an 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.”

AASB 116 para 16

See Study Guide Chapter 5 page 5-6 & 5-7

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