Financial Statements/Measurement of property, plant and equipment

BesarB

Hello

Initially PPE is measured at cost on the SOP, Cost is the purchase price, including any import duties, taxes, plus any costs directly attributable to bring the asset to the location and condition, plus the estimated costs of removing an asset. I just cannot get my head around the estimated costs of removing an asset as I think it goes to P/L as an expense when the asset is disposed off. Can someone help me on this please.

CeeJaySix

You will have a provision or accrual somewhere for the removal costs:

At purchase:
Dr cost (actual cost plus costs to remove)
Cr bank (actual cost)
Cr provision (costs to remove)

By depreciating you will spread all of these costs over the life of the asset to the P&L. Let's assume that at disposal, the asset is nil NBV, you scrap it for nil proceeds and your estimate of the costs to remove was spot on.

At disposal:
Dr accumulated depreciation (actual cost plus costs to remove, as you have depreciated the full cost)
Cr cost (actual cost plus costs to remove)
Dr provision (costs to remove)
Cr bank (costs to remove)

BesarB

Thank you so much!!! in the book-financial statements-by Osbourne books does not dwell into the double entry side of it, I wonder if I would come across to it in other modules because I think the double entry side of it is as important.