International Financial Reporting Standards (ifrs)

Determining Cost of PPE

Land	Land Improvements	Building	Equipment
Purchase price Closing costs, such as title and attorney’s fees Broker’s commissions Cost of removing any unwanted building (less any proceed from salvage) Other costs paid by the purchaser such as accrued property taxes	Landscaping including trees and shrubs Paved parking areas Fences Outdoor lighting	Purchased Building: Purchase price Closing costs, such as title and attorney’s fees Broker’s commissions Other costs to make the building ready for use such as repairing floor, roof or wiring.   New construct building: Construction costs Architects’ fee Excavation costs Building permits	Purchase price Freight charges Insurance while in transit Installation cost Testing cost Permit from government

Depreciation Concepts

• In every accounting year during asset’s useful life, companies should recognize services utilized from the consumption of the assets as an expense. This concept called as depreciation.
• Depreciation refers to the process of allocating the PPE cost as an expense over its useful life in a rational and systematic manner.
• Through depreciation, asset-related expense is been matched with revenue generated within the same accounting period.  
• Depreciation only applies to three major types of PPE; i.e. building, land improvements and equipment, as these assets’ benefit or service ability will decline over its useful life. For land, usually it has unlimited useful life and in fact, the usefulness will increase over time, therefore it is not appropriate to depreciate this asset.