Prepared by

Coby Harmon
University of California, Santa Barbara
Westmont College
10-1
 Acquisition and CHAPTER 10
Disposition of Property,
Plant, and Equipment
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify property, plant, and 4. Describe the accounting
equipment and its related costs. treatment for costs subsequent
to acquisition.
2. Discuss the accounting
problems associated with 5. Describe the accounting
interest capitalization. treatment for the disposal of
property, plant, and equipment.
3. Explain accounting issues
related to acquiring and valuing
plant assets.

10-2
 PREVIEW OF CHAPTER 10

Intermediate Accounting
IFRS 3rd Edition
Kieso ● Weygandt ● Warfield
10-3
 Property, Plant, and LEARNING OBJECTIVE 1
Identify property, plant, and
Equipment equipment and its related costs.

Property, plant, and equipment are assets of a durable nature.

Other terms commonly used are plant assets and fixed assets.

► “Used in operations” and not for Includes:

resale.  Land,
 Building structures
► Long-term in nature and usually
(offices, factories,
depreciated. warehouses), and
 Equipment
► Possess physical substance.
(machinery, furniture,
tools).

10-4 LO 1
 Definisi PPE atau Fixed Assets

Menurut PSAK 16 (2014), aset tetap adalah aset

berwujud yang:
• dimiliki untuk digunakan dalam produksi atau
penyediaan barang atau jasa, untuk direntalkan kepada
pihak lain, atau untuk tujuan administratif, dan
• diharapkan untuk digunakan selama lebih dari satu
periode.

10-5
 Karakteristik Fixed Assets

● Memiliki substansi fisik (berwujud), seperti tanah dan bangunan.

● Memiliki tujuan penggunaan khusus: 1) digunakan dalam produksi
atau penyediaan barang atau jasa, 2) untuk direntalkan kepada
pihak lain, atau 3) untuk tujuan administratif.
● Bersifat jangka panjang (lebih dari satu periode akuntansi) dan
merupakan subjek penyusutan.
Aset berwujud yang tidak memenuhi salah satu karakteristik Aset
Tetap di atas dapat digolongkan sebagai:
1. Properti Investasi*
2. Persediaan
3. Aset tersedia untuk dijual

Menurut PSAK 13, properti investasi adalah properti (tanah atau bangunan atau
bagian dari suatu bangunan atau kedua-duanya) yang dikuasai (oleh pemilik atau
lessee/penyewa melalui sewa pembiayaan) untuk menghasilkan rental atau untuk
kenaikan nilai atau kedua-duanya, dan tidak untuk: 1. digunakan dalam produksi
atau penyediaan barang atau jasa atau untuk tujuan administratif; atau 2. dijual
dalam kegiatan usaha sehari-hari.
10-6
 Pengukuran Awal Fixed Assets

Historical cost measures the cash or cash equivalent price of

obtaining the asset and bringing it to the location and condition
necessary for its intended use.

In general, costs include:

1. Purchase price, including import duties and non-refundable

purchase taxes, less trade discounts and rebates.

2. Costs attributable to bringing the asset to the location and

condition necessary for it to be used in a manner intended
by the company.

10-7 LO 1
 Pengukuran Selanjutnya Fixed Assets

Companies value property, plant, and equipment in

subsequent periods using either the
 cost method or

 fair value (revaluation) method.

10-8 LO 1
 Acquisition of Fixed Assets

Cost of Land
All expenditures made to acquire land and ready it for use.
Costs typically include:
(1) purchase price;
(2) closing costs, such as title to the land, attorney’s fees, and
recording fees;
(3) costs of grading, filling, draining, and clearing;
(4) assumption of any liens, mortgages, or encumbrances on
the property; and
(5) additional land improvements that have an indefinite life.

10-9 LO 1
 Acquisition of Fixed Assets

Cost of Land
 Improvements with limited lives, such as private
driveways, walks, fences, and parking lots, are recorded
as Land Improvements and depreciated.

 Land acquired and held for speculation is classified as

an investment.

 Land held by a real estate concern for resale should be

classified as inventory.

10-10 LO 1
 Acquisition of Fixed Assets

Cost of Buildings
Includes all expenditures related directly to acquisition or
construction. Costs include:

 materials, labor, and overhead costs incurred during

construction and

 professional fees and building permits.

Companies consider all costs incurred, from excavation to

completion, as part of the building costs.

10-11 LO 1
 Acquisition of Fixed Assets

Cost of Equipment
Include all expenditures incurred in acquiring the equipment
and preparing it for use. Costs include:

 purchase price,

 freight and handling charges,

 insurance on the equipment while in transit,

 cost of special foundations if required,

 assembling and installation costs, and

 costs of conducting trial runs.

10-12 LO 1
 Acquisition of Fixed Assets

E10.1: The expenditures and receipts below are related to land, land
improvements, and buildings acquired for use in a business enterprise.
Determine how the following should be classified:

a. Money borrowed to pay building contractor a. Notes Payable

(signed a note)
b. Payment for construction from note proceeds b. Buildings
c. Cost of land fill and clearing c. Land
d. Delinquent real estate taxes on property d. Land
assumed by purchaser
e. Premium on 6-month insurance policy during e. Buildings
construction

10-13 LO 1
 Acquisition of PP&E

E10.1: Determine how the following should be classified:

f. Refund of 1-month insurance premium f. (Buildings)

because construction completed early
g. Architect’s fee on building g. Buildings
h. Cost of real estate purchased as a plant site h. Land
(land €200,000 and building €50,000)
i. Commission fee paid to real estate agency i. Land
j. Cost of razing and removing building j. Land
k. Installation of fences around property k. Land
Improvements

10-14 LO 1
 Acquisition of PP&E

E10.1: Determine how the following should be classified:

l. Proceeds from residual value of demolished l. (Land)

building
m. Interest paid during construction on money m. Buildings
borrowed for construction
n. Land
n. Cost of parking lots and driveways
Improvements
o. Cost of trees and shrubbery planted o. Land
(permanent in nature)
p. Excavation costs for new building p. Buildings

10-15 LO 1
 Acquisition of Fixed Assets

Self-Constructed Assets
Costs include:
 Materials and direct labor

 Overhead can be handled in two ways:

1. Assign no fixed overhead.

2. Assign a portion of all overhead to the construction

process.

Companies use the second method extensively.

10-16 LO 1
 Interest Costs LEARNING OBJECTIVE 2
Discuss the accounting problems
During Construction associated with interest
capitalization.

Three approaches have been suggested to account for the

interest incurred in financing the construction.

$0
Increase to Cost of Asset $?

Capitalize no Capitalize
interest during Capitalize actual all costs of
construction costs incurred during funds
construction

ILLUSTRATION 10.1
Capitalization of Interest Costs
IFRS

10-17 LO 2
 Interest Costs During Construction

 IFRS requires — capitalizing actual interest (with

modification).

 Consistent with historical cost.

 Capitalization considers three items:

1. Qualifying assets.

2. Capitalization period.

3. Amount to capitalize.

10-18 LO 2
 Interest Costs During Construction

Qualifying Assets (Aset Kualifikasian)

 Aset kualifikasian adalah aset yg membutuhkan waktu yang
cukup lama agar siap digunakan atau dijual sesuai dengan
maksudnya
 Contoh: persediaan, pabrik, fasilitas pembangkit listrik, aset tidak
berwujud, dan properti investasi
 Tidak termasuk
 Aset keuangan
 Persediaan yang dipabrikasi atau diproduksi dalam jangka
waktu pendek
 Aset yang siap untuk digunakan atau dijual sesuai dengan
maksudnya ketika diperoleh

10-19 PSAK 26/SY LO 2

 Interest Costs During Construction
Capitalization Period
Awal Kapitalisasi Penghentian Sementara
• Pengeluaran untuk aset telah terjadi Kapitalisasi
• Aktivitas untuk mempersiapkan aset seusai • Aktivitas atas aset
maksud sudah dimulai kualifikasian dihentikan
• Biaya pinjaman telah terjadi
Kapitalisasi Tidak
Dihentikan
• Perusahan melakukan
pekerjaan teknikan dan
Akhir Kapitalisasi administratif signifikan
• Penyelesaian aktivitas untuk mempersiapkan aset • Penundaan sementara
sesuai maksud (konstruksi fisik selesai) merupakan bagian dari
• Konstruksi aset diselesaikan per bagian dan dapat proses yg diperlukan
digunakan selama konstruksi bagian lain – biaya untuk mempersiapkan
pinjaman per bagian (kompleks bisnis) aset sesuai maksudnya

10-20 PSAK 26/SY LO 2

 Interest Costs During Construction

Amount to Capitalize
Capitalize the lesser of:
1. Actual interest cost incurred.

2. Avoidable interest - the amount of interest cost during

the period that a company could theoretically avoid if it
had not made expenditures for the asset.

10-21 LO 2
 Interest Costs During Construction
Biaya Pinjaman
BIAYA PINJAMAN
yang Dikapitalisasi

Biaya pinjaman yg dapat dihindari jika pengeluaran

atas aset tidak dilakukan

PINJAMAN KHUSUS PINJAMAN UMUM

Biaya pinjaman aktual • Tarif kapitalisasi: rata-rata

(–) tertimbang atas saldo
Penghasilan investasi pinjaman (di luar pinjaman
sementara khusus)
• Tidak boleh melebihi
jumlah biaya pinjaman
aktual

10-22
PSAK 26/SY
 Tahapan Menghitung Kapitalisasi Bunga

1 Menentukan aset kualifikasian

2 Menentukan periode kapitalisasi

Menghitung akumulasi pengeluaran rata-rata tertimbang (WAAE)* untuk

3 pinjaman umum, termasuk bunga rata-rata tertimbang pinjaman umum

4 Menghitung bunga aktual dan bunga yang dapat dihindari

Menentukan jumlah bunga yang dikapitalisasi, yaitu jumlah yang

5 lebih rendah antara biaya bunga aktual yang terjadi atau bunga yang
dapat dihindari (avoidable interest)

*Dalam menghitung WAAE untuk pinjaman umum, perusahaan menghitung bobot

pengeluaran konstruksi untuk porsi pinjaman umum dengan mengalikan
pengeluaran tersebut dengan bagian per tahun (jumlah waktu pengeluaran dibagi
dengan 12 bulan atau periode akuntansi).
10-23
 Ilustrasi Menghitung Kapitalisasi Bunga
a. PT Samudera Luas membangun gedung senilai Rp2.200.000.000 di atas
tanah yang dibeli seharga Rp800.000.000 (tanah dibeli dari kontraktor dan
harga beli tanah sudah termasuk dalam pembayaran 1 Januari 2019).
Pembangunan dimulai tanggal 1 Januari 2019 dan selesai tanggal 31
Desember 2019 dengan rincian pembayaran sebagai berikut (dalam rupiah).
o 1 Januari 2019 1.000.000.000
o 31 Maret 2019 600.000.000
o 30 September 2019 1.200.000.000
o 31 Desember 2019 200.000.000
b. Per tanggal 1 Januari 2019, PT Samudera Luas memiliki pinjaman dengan
rincian sebagai berikut.
o Surat utang (pinjaman khusus untuk pembangunan gedung), 4 tahun,
Rp1.500.000.000, bunga 10% (tahunan). Beban bunga Rp150.000.000
dan hasil bunga Rp20.000.000.
o Surat utang, 10 tahun, Rp1.000.000.000, 12,5% (tahunan)
o Surat utang, 10 tahun, Rp1.500.000.000, 10% (tahunan)
Diminta:
Berapa biaya/beban bunga yang dapat dikapitalisasi oleh PT Samudera Luas?

10-24 LO 2
 Ilustrasi Menghitung Kapitalisasi Bunga
1. Menentukan Aset Kualifikasian
Pada kasus di atas, gedung yang dibangun memenuhi syarat sebagai aset
kualifikasian karena membutuhkan waktu yang cukup lama agar siap digunakan
atau dijual sesuai dengan maksudnya.
2. Menentukan Periode Kapitalisasi
Pada kasus di atas, periode kapitalisasi bunga adalah tanggal 1 Juli 2016 sampai
dengan 30 Juni 2017.
3. Menghitung akumulasi pengeluaran rata-rata tertimbang (WAAE) pinjaman
umum, termasuk bunga rata-rata tertimbang pinjaman umum
Untuk menghitung akumulasi pengeluaran rata-rata tertimbang, diperlukan bantuan
tabel sebagai berikut.
Rata-rata Pengeluaran
Tanggal Pengeluaran Alokasi ke Pinjaman Umum
Pinjaman Umum
1 Januari 2019 1.000.000.000 0 (1.000-1.500) 0
31 Maret 2019 600.000.000 100.000.000 (1.600-1.500) 100.000.000 x (9/12)
30 Sept 2019 1.200.000.000 1.200.000.000 1.200.000.000 x (3/12)
31 Des 2019 200.000.000 200.000.000 200.000.000 x (0/12)
Total 3.000.000.000 375.000.000

Bunga rata-rata tertimbang = [12,5% x (1.000/2.500)] + [10% x (1.500/2.500)]

pinjaman umum
= 11%
10-25 LO 2
 Ilustrasi Menghitung Kapitalisasi Bunga
4. Menghitung bunga aktual dan bunga yang dapat dihindari
Perhitungan bunga aktual dan bunga yang dapat dihindari (avoidable interest):
Beban bunga aktual
Pinjaman khusus 150.000.000
Pinjaman umum 1.000.000.000 x 12,5% 125.000.000
1.500.000.000 x 10,0% 150.000.000
Total beban bunga aktual 425.000.000

Beban bunga
Pinjaman khusus 150.000.000
Pinjaman umum 375.000.000 x 11% 41.250.000
Beban bunga 191.250.000
Hasil bunga (pinjaman khusus) (20.000.000)
Bunga yang Dapat Dihindari 171.250.000
(avoidable interest)
5. Menentukan jumlah bunga yang dikapitalisasi
Jumlah bunga yang dikapitalisasi adalah jumlah yang lebih rendah antara biaya
bunga aktual yang terjadi atau bunga yang dapat dihindari (avoidable interest),
yaitu Rp171.250.000 (karena Rp171.250.000 < Rp425.000.000).
10-26 LO 2
 Ilustrasi Menghitung Kapitalisasi Bunga
Jurnal yang diperlukan selama tahun 2019 (dalam ribuan):
Tanggal Akun Ref. Debit Kredit
1 Jan 2019 Land 800.000
Buildings (or CIP) 200.000
Cash 1.000.000
31 Maret 2019 Buildings 600.000
Cash 600.000
30 Sept 2019 Buildings 1.200.000
Cash 1.200.000
31 Des 2019 Buildings 200.000
Cash 200.000
Buildings (Capitalized Interest) 171.250
Interest Expense 253.750
Cash 425.000

10-27 LO 2
 Ilustrasi Menghitung Kapitalisasi Bunga
Perusahaan menyajikan dan mengungkapkan jumlah bunga yang
dikapitalisasi dalam laporan laba rugi tahun 2019 sebagai berikut.

Income from operations xxxxx

Interest expense 425.000.000
Less: capitalized interest (171.250.000) 253.750.000
Income before income taxes xxxxx
Income taxes (xxxxx)
Net income xxxxx

Catatan (Notes): Jumlah bungan yang dikapitalisasi. Selama tahun 2019, jumlah
bunga yang dibayarkan Rp425.000.000 dan Rp171.250.000 di antaranya dikapitalisasi
ke dalam aset gedung dan sisanya sebesar Rp253.750.000 dicatat sebagai interest
expense.

10-28 LO 2
 Menghitung Kapitalisasi Bunga

Jika periode pembangunan lebih dari satu tahun, berikut ini

beberapa hal yang perlu diperhatikan.

1. Porsi pengeluaran pinjaman umum yang ditimbang di

tahun berjalan akan ditimbang kembali di tahun berikutnya
sampai dengan berakhirnya masa konstruksi.

2. Jumlah bunga yang sudah dikapitalisasi pada tahun

berjalan akan menambah pengeluaran (expenditure) pada
tahun berikutnya dan diikutkan dalam perhitungan
akumulasi rata-rata pengeluaran tertimbang untuk
pinjaman umum.

10-29 LO 2
 Interest Costs During Construction

Special Issues Related to Interest Capitalization

1. Expenditures for Land
 If land is purchased as a site for a structure, interest
costs capitalized during the period of construction are
part of the cost of the plant, not the land.

 Conversely, if the company develops land for lot sales,

it includes any capitalized interest cost as part of the
acquisition cost of the developed land.

2. Interest Revenue
 In general, companies should not offset interest revenue
against interest cost unless earned on specific borrowings.
10-30 LO 2
 Valuation of Property, LEARNING OBJECTIVE 3
Explain accounting issues related
Plant, and Equipment to acquiring and valuing plant
assets.

Companies should record property, plant, and equipment:

 at the fair value of what they give up or

 at the fair value of the asset received,

whichever is more clearly evident.

10-31 LO 3
 Valuation of PP&E

Cash Discounts — Discounts for prompt payment.

Deferred-Payment Contracts — Assets purchased on
long-term credit contracts are valued at the present value of the
consideration exchanged.

Lump-Sum Purchases — Allocate the total cost among the

various assets on the basis of their relative fair market values.

Issuance of Shares — The market price of the shares issued

is a fair indication of the cost of the property acquired.

10-32 LO 3
 Valuation of PP&E

Exchanges of Non-Monetary Assets

Ordinarily accounted for on the basis of:
 the fair value of the asset given up or

 the fair value of the asset received,

whichever is clearly more evident.

Companies should recognize immediately any gains or losses on

the exchange when the transaction has commercial substance.

10-33 LO 3
 Exchanges of Non-Monetary Assets

Meaning of Commercial Substance

Exchange has commercial substance if the future cash flows
change as a result of the transaction. That is, if the two parties’
economic positions change, the transaction has commercial
substance.

ILLUSTRATION 10.10
Accounting for Exchanges
10-34 LO 3
 Exchanges of Non-Monetary Assets

Loss Situation (Has Commercial Substance)

Companies recognize a loss if the exchange has commercial
substance.

Rationale: Companies should not value assets at more than their

cash equivalent price. If the loss were deferred, assets would be
overstated.

10-35 LO 3
 Loss Situation (Has Commercial Substance)

Illustration: Information Processing PA trades its used machine for a

new model at Jerrod Business Solutions NV. The exchange has
commercial substance. The used machine has a book value of €8,000
(original cost €12,000 less €4,000 accumulated depreciation) and a fair
value of €6,000. The new model lists for €16,000. Jerrod gives
Information Processing a trade-in allowance of €9,000 for the used
machine. Information Processing computes the cost of the new asset
as follows.

ILLUSTRATION 10.11
Computation of Cost of
New Machine

10-36 LO 3
 Loss Situation (Has Commercial Substance)

Illustration: Information Processing records this transaction as follows:

Equipment 13,000
Accumulated Depreciation—Equipment 4,000
Loss on Disposal of Equipment 2,000
Equipment 12,000
Cash 7,000

ILLUSTRATION 10.12
Loss on Computation of Loss
on Disposal of Used
Disposal Machine

10-37 LO 3
 Exchanges of Non-Monetary Assets

Gain Situation (Has Commercial Substance)

Company usually records the cost of a non-monetary asset
acquired in exchange for another non-monetary asset at the
fair value of the asset given up, and immediately recognizes
a gain.

10-38 LO 3
 Gain Situation (Has Commercial Substance)

Illustration: Interstate Transportation Company exchanged a number

of used trucks plus cash for a semi-truck. The used trucks have a
combined book value of $42,000 (cost $64,000 less $22,000
accumulated depreciation). Interstate’s purchasing agent,
experienced in the secondhand market, indicates that the used
trucks have a fair market value of $49,000. In addition to the trucks,
Interstate must pay $11,000 cash for the semi-truck. Interstate
computes the cost of the semi-truck as follows.

ILLUSTRATION 10.13
Computation of Semi-
Truck Cost

10-39 LO 3
 Gain Situation (Has Commercial Substance)

Illustration: Interstate records the exchange transaction as follows:

Truck (semi) 60,000

Accumulated Depreciation—Trucks 22,000
Trucks (used) 64,000
Gain on Disposal of Trucks 7,000
Cash 11,000

ILLUSTRATION 10.14
Computation of Gain
Gain on on Disposal of Used
Trucks
Disposal

10-40 LO 3
 Exchanges of Non-Monetary Assets

Lacks Commercial Substance

Now assume that Interstate Transportation Company
exchange lacks commercial substance.

Interstate defers the gain of $7,000 and reduces the basis of

the semi-truck.

10-41 LO 3
 Exchanges of Non-Monetary Assets

Illustration: Interstate records the exchange transaction as

follows:

Trucks (semi) 53,000

Accumulated Depreciation—Trucks 22,000
Trucks (used) 64,000
Cash 11,000

ILLUSTRATION 10.15
Basis of Semi-Truck—Fair Value vs. Book Value

10-42 LO 3
 Exchanges of Non-Monetary Assets

Summary of Gain and Loss Recognition on Exchanges of

Non-Monetary Assets ILLUSTRATION 10.16

Compute the total gain or loss on the transaction. This amount is equal to the
difference between the fair value of the asset given up and the book value of
the asset given up.
(a) If the exchange has commercial substance, recognize the entire gain or
loss.
(b) If the exchange lacks commercial substance, no gain or loss is
recognized.

Disclosure include
 nature of the transaction(s),
 method of accounting for the assets exchanged, and
 gains or losses recognized on the exchanges.
10-43 LO 3
 Valuation of PP&E

Government Grants
Government Grants are assistance received from a
government in the form of transfers of resources to a company
in return for past or future compliance with certain conditions
relating to the operating activities of the company.

IFRS requires grants to be recognized in income (income

approach) on a systematic basis that matches them with the
related costs that they are intended to compensate.

10-44 LO 3
 Government Grants

Example 1: Grant for Lab Equipment. Spectrum AG received a

€500,000 subsidy from the government to purchase lab equipment on
January 2, 2019. The lab equipment cost is €2,000,000, has a useful
life of five years, and is depreciated on the straight-line basis.

IFRS allows AG to record this grant in one of two ways:

1. Credit Deferred Grant Revenue for the subsidy and amortize

the deferred grant revenue over the five-year period.

2. Credit the lab equipment for the subsidy and depreciate this
amount over the five-year period.

10-45 LO 3
 Government Grants

Example 1: Grant for Lab Equipment. If Spectrum chooses to record

deferred revenue of €500,000, it amortizes this amount over the five-
year period to income (€100,000 per year). The effects on the
financial statements at December 31, 2019, are:
ILLUSTRATION 10.17
Government Grant
Recorded as Deferred
Revenue

10-46 LO 3
 Government Grants

Example 1: Grant for Lab Equipment. If Spectrum chooses to reduce

the cost of the lab equipment, Spectrum reports the equipment at
€1,500,000 (€2,000,000 - €500,000) and depreciates this amount
over the five-year period. The effects on the financial statements at
December 31, 2019, are:

ILLUSTRATION 10.18
Government Grant Adjusted to Asset

10-47 LO 3
 Government Grants

Example 2: Grant for Past Losses. Flyaway Airlines has incurred

substantial operating losses over the last five years. The City of
Plentiville does not want to lose airline service and therefore agrees
to provide a cash grant of $1,000,000 to the airline to pay off its
creditors so that it may continue service. Because the grant is given
to pay amounts owed to creditors for past losses, Flyaway Airlines
should record the income in the period it is received.

Cash 1,000,000
Grant Revenue 1,000,000

If the conditions indicate that Flyaway must satisfy some future

obligations, then it is appropriate to credit Deferred Grant Revenue
and amortize it over the appropriate periods in the future.
10-48 LO 3
 Government Grants

Example 3: Grant for Borrowing Costs. Flyaway The City of Puerto

Aloa is encouraging the high-tech firm TechSmart to move its plant to
Puerto Aloa. The city has agreed to provide an interest-free loan of
$10,000,000, with the loan payable at the end of 10 years, provided
that TechSmart will employ at least 50 percent of its work force from
the community of Puerto Aloa over the next 10 years. TechSmart’s
incremental borrowing rate is 9 percent. The present value of the
future loan payable ($10,000,000) is $6,499,300 ($10,000,000 ×
.64993i=9%, n=5). The entry to record the borrowing is as follows.

Cash 6,499,300
Notes Payable 6,499,300

10-49 LO 3
 Government Grants

In addition, using the deferred revenue approach, the company

records the grant as follows ($10,000,000 - $6,499,300).

Cash 3,500,700
Deferred Grant Revenue 3,500,700

TechSmart then uses the effective-interest rate to determine interest

expense of $584,937 (9% × $6,499,300) in the first year. The
company also decreases Deferred Grant Revenue and increases
Grant Revenue for $584,937. As a result, the net expense related to
the borrowing is zero in each year.

10-50 LO 3
 Costs Subsequent LEARNING OBJECTIVE 4
Describe the accounting
to Acquisition treatment for costs subsequent to
acquisition.

Recognize costs subsequent to acquisition as an asset when

the costs can be measured reliably and it is probable that the
company will obtain future economic benefits.
Evidence of future economic benefit would include increases in
1. useful life,

2. quantity of product produced, and

3. quality of product produced.

10-51 LO 4
 Costs Subsequent to Acquisition

Major Types of Expenditures

Additions. Increase or extension of existing assets.
Improvements and Replacements. Substitution of a better or
similar asset for an existing one.
Rearrangement and Reorganization. Movement of assets from one
location to another.
Repairs. Expenditures that maintain assets in condition for
operation.

10-52 LO 4
 Costs Subsequent to Acquisition

ILLUSTRATION 10.21
Summary of Costs Subsequent to Acquisition of Property, Plant, and Equipment

In determining how costs should be allocated subsequent to acquisition,

companies follow the same criteria used to determine the initial cost of
property, plant, and equipment. They recognize costs as an asset when the
costs can be measured reliably and it is probable that the company will obtain
future economic benefits.
10-53 LO 4
 Costs Subsequent to Acquisition
Perlakuan Biaya Improvements & Replacements
• Pendekatan yang tepat dalam hal jumlah tercatat
dari aset lama tersedia
• Menghapus harga perolehan dan akumulasi
Pendekatan Substitusi penyusutan aset lama, termasuk mencatat kerugian
(jika ada) kemudian menggantikannya dengan
harga perolehan aset baru

Kapitalisasi Harga Harga perolehan baru atau pengeluaran yang terjadi

akibat peningkatan dan penggantian akan dikapitalisasi
Perolehan Baru ke dalam aset

Jika penggantian yang dilakukan tidak meningkatkan

Mengurangi Akumulasi kualitas aset, melainkan dapat memperpanjang umur
manfaat aset, maka pengeluaran terkait penggantian
Penyusutan tersebut dapat didebit ke akun Accumulated
Depreciation, bukan ke akun aset.

10-54 LO 4
 Disposition of Property, LEARNING OBJECTIVE 5
Describe the accounting
Plant, and Equipment treatment for the disposal of
property, plant, and equipment.

A company may retire plant assets voluntarily or dispose of

them by
 Sale,

 Exchange,

 Involuntary conversion, or

 Abandonment.

Depreciation must be taken up to the date of disposition.

10-55 LO 5
 Disposition of PP&E

Sale of Plant Assets

Illustration: Barret Group recorded depreciation on a machine
costing €18,000 for nine years at the rate of €1,200 per year. If it
sells the machine in the middle of the tenth year for €7,000, Barret
records depreciation to the date of sale as:

Depreciation Expense (€1,200 x ½) 600

Accumulated Depreciation—Machinery 600

10-56 LO 5
 Disposition of PP&E

Illustration: Barret Group recorded depreciation on a machine

costing €18,000 for nine years at the rate of €1,200 per year. If it
sells the machine in the middle of the tenth year for €7,000, Barret
records depreciation to the date of sale. Record the entry to record
the sale of the asset:

Cash 7,000
Accumulated Depreciation—Machinery 11,400
Machinery 18,000
Gain on Disposal of Machinery 400

10-57 LO 5
 Disposition of PP&E

Involuntary Conversion
Sometimes an asset’s service is terminated through some type of
involuntary conversion such as fire, flood, theft, or condemnation.

Companies report the difference between the amount recovered

(e.g., from a condemnation award or insurance recovery), if any,
and the asset’s book value as a gain or loss.

They treat these gains or losses like any other type of disposition.

10-58 LO 5
 Disposition of PP&E

Illustration: Camel Transport Corp. had to sell a plant located on

company property that stood directly in the path of an interstate
highway. Camel received $500,000, which substantially exceeded the
book value of the land of $150,000 and the book value of the building
of $100,000 (cost of $300,000 less accumulated depreciation of
$200,000). Camel made the following entry.

Cash 500,000
Accumulated Depreciation—Buildings 200,000
Buildings 300,000
Land 150,000
Gain on Disposal of Plant Assets 250,000

10-59 LO 5
 Copyright

Copyright © 2018 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
express written permission of the copyright owner is unlawful.
Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no responsibility for
errors, omissions, or damages, caused by the use of these
programs or from the use of the information contained herein.

10-60