About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
2 2 3 Property, Plant, and Equipment Explained

2 3 Property, Plant, and Equipment Explained

Key Concepts

Definition of Property, Plant, and Equipment (PP&E)

Property, Plant, and Equipment (PP&E) are tangible assets that are held for use in the production or supply of goods and services, for rental to others, or for administrative purposes. These assets are expected to be used over more than one accounting period.

Initial Recognition and Measurement

PP&E is initially recognized at its cost, which includes the purchase price, any directly attributable costs necessary to bring the asset to its working condition for its intended use, and any costs incurred in dismantling and removing the item and restoring the site on which it is located.

Example: A manufacturing company purchases a machine for $100,000. The cost includes $5,000 for delivery and installation, and $2,000 for training employees to operate the machine. The total cost of the machine is $107,000.

Depreciation Methods

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. Common methods include straight-line, declining balance, and units of production. The choice of method depends on the nature of the asset and how it contributes to revenue.

Example: A company uses the straight-line method to depreciate a building with a cost of $500,000 and an estimated useful life of 25 years. The annual depreciation expense is $20,000 ($500,000 / 25 years).

Revaluation Model

The revaluation model allows companies to periodically adjust the carrying amount of PP&E to reflect fair value. If an asset is revalued, the entire class of assets to which it belongs must also be revalued. Revaluations are typically performed by professional valuers.

Example: A company revalues its land and buildings, which were initially recorded at $1 million. The revaluation shows that the fair value is now $1.2 million. The carrying amount is adjusted to $1.2 million, and the difference of $200,000 is recorded as a revaluation surplus.

Impairment of PP&E

Impairment occurs when the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. If impairment is identified, the asset's carrying amount is reduced to its recoverable amount.

Example: A company owns machinery with a carrying amount of $80,000. Due to technological advancements, the machinery's fair value less costs to sell is now $50,000. The company records an impairment loss of $30,000 to reduce the carrying amount to $50,000.

Examples and Analogies

Consider PP&E as the "backbone" of a business, providing the infrastructure needed for operations. Initial recognition and measurement are like "setting the foundation" for these assets, ensuring they are recorded accurately.

Depreciation methods are akin to "aging" the assets over time, reflecting their wear and tear. The revaluation model is like "updating" the value of assets to reflect current market conditions.

Impairment is like "recognizing" when an asset has lost value due to external factors, ensuring that the financial statements reflect the true worth of the assets.

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