Property, Plant & Equipment (PPE)
Long-lived tangible assets used in operations to produce goods/services or for administrative purposes, expected to be used over more than one period. ACC 926 Module 10.
ADMN 201’s “fixed assets” line on the balance sheet refers to PPE. ACC 926 specifies what costs go into the asset, how it’s measured after acquisition, and which model applies under each standard.
Recognition Criteria
Recognize PPE if:
- Future economic benefits will probably flow to the entity, AND
- Cost can be measured reliably.
Initial Measurement — What Costs to Capitalize
Capitalize all costs necessary to get the asset ready for its intended use.
| Include in cost | Exclude from cost |
|---|---|
| Purchase price (net of trade discounts) | Training costs |
| Non-refundable taxes, duties | Routine maintenance |
| Freight, handling, installation | Costs after asset is ready for use |
| Site preparation, testing | Reorganization costs |
| Professional fees (architects, engineers) | Administrative overhead (general) |
| Estimated decommissioning / restoration costs | Promotional / opening costs |
| Borrowing costs on qualifying assets (IFRS) |
Self-Constructed Assets
Cost includes direct materials, direct labor, and a reasonable allocation of overhead. Borrowing costs during construction:
- IFRS — must be capitalized while the asset is being prepared for use.
- ASPE — policy choice (capitalize OR expense).
Non-Monetary Exchanges
Whether to recognize a gain/loss depends on commercial substance:
| Has commercial substance | Lacks commercial substance | |
|---|---|---|
| New asset measured at | Fair value (recognize gain/loss) | Carrying value of asset given up (no gain/loss) |
Commercial substance exists when expected future cash flows of the entity change significantly as a result of the exchange.
Costs After Acquisition
graph TD C[Cost incurred after acquisition] C --> Q{Does it extend life,<br/>improve capacity,<br/>or improve quality?} Q -->|Yes| CAP[Capitalize<br/>Add to asset] Q -->|No — restore original use| EXP[Expense<br/>Maintenance/Repair]
(diagram saved)
| Cost type | Treatment |
|---|---|
| Additions | Capitalize (creates new asset capacity) |
| Replacement of major component | Capitalize new component; derecognize old |
| Major overhaul/inspection | Capitalize (component approach) |
| Routine repairs / maintenance | Expense |
| Improvements / betterments | Capitalize |
Subsequent Measurement Models
After initial recognition, PPE is measured under one of two models:
Cost Model (IFRS + ASPE)
Carry at cost − accumulated depreciation − accumulated impairment losses.
Revaluation Model (IFRS only)
Carry at fair value at the revaluation date − subsequent depreciation − subsequent impairment.
- Revaluations must be regular (frequent enough that carrying amount ≈ fair value).
- Increases → recognized in OCI (Revaluation Surplus in equity).
- Decreases → recognized in profit or loss (unless reversing prior surplus).
ASPE allows only the cost model for PPE.
Component Approach
If parts of an asset have different useful lives, depreciate each component separately. Mandatory under IFRS; less prescriptive under ASPE.
Investment Property (IFRS only)
Property held to earn rentals or for capital appreciation rather than for use in operations or sale in the ordinary course of business. Separate IAS 40 classification:
- Cost model (carry like PPE), OR
- Fair value model (revalue through profit or loss — no depreciation).
ASPE treats investment property as ordinary PPE.
Cross-Course Connections
- AccountingEquation-FinancialStatements — fixed assets line on balance sheet
- Depreciation — what happens to PPE after recognition
- IntangiblesAndGoodwill — non-tangible long-lived assets follow similar (but different) rules
- Depreciation-FixedAssets — connection from ADMN 201 to ACC 926
- IFRSvsASPE — revaluation model is IFRS-only
Key Points
- Capitalize all costs to get asset ready for intended use (incl. site prep, professional fees, decommissioning estimate)
- IFRS: capitalize borrowing costs on qualifying assets (required)
- ASPE: policy choice — capitalize or expense borrowing costs
- Two subsequent models: cost (IFRS + ASPE) or revaluation (IFRS only)
- Revaluation increases → OCI; decreases → P&L (unless reversing surplus)
- Component approach: depreciate components with different lives separately (mandatory under IFRS)
- After-acquisition costs: capitalize if extends life / improves capacity or quality; expense otherwise
- Non-monetary exchange: gain/loss recognized only if commercial substance exists