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The Corporate Finance Institute Accounting
Recognition and Measurement
PPE should be recognized by a company only if:
a. It is probable that future economic benefits associated with asset will
flow to the entity; and
b. The cost of the asset can be measured reliably.
The initial costs of a PPE item may include:
a. Its purchase price, any import duties, non-refundable taxes, sales
discounts, and rebates;
b. Any costs directly attributable to bringing the asset to the location
and condition necessary for it to operational; and
c. An estimated value of the costs of dismantling and removing the
asset and restoring the site on which it is located. This is commonly
referred to as an asset retirement obligation (ARO).
The following table illustrates some costs that must be included in the
capitalization of PPE:
Land Building Equipment
Land purchase cost Building purchase cost Equipment purchase cost
Legal fees Construction permit Installation costs
Property transfer tax Architectural design costs Testing costs
Demolition of old structures Construction costs Equipment specific training costs
Soil decontamination costs Engineer survey costs Transportation & delivery costs
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