PPE- building or machinery

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Asnake E
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Joined: 02 Oct 2019, 03:28

PPE- building or machinery

Post by Asnake E »

Hi,

I have the following question

A company already has a building that it intends to use for a factory. Now the company is about to install the machine (plastic form works production machinery), in this process concrete and water proofing works are done on the building (these costs are material). My question is: should these costs (ie. the concrete and water proofing) form part of the building or the machinery?
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exIFRS
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Re: PPE- building or machinery

Post by exIFRS »

I would think primarily about which item the useful life is more closely tied to. And I am suspecting it is the building. If the use of the factory changes I assume those works would still add value to the building as a whole. I would only link to the machine if the works only added value while that machine is being used.
Asnake E
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Re: PPE- building or machinery

Post by Asnake E »

Thank you for the reply. My ambiguity arises by the fact that these upgrading to the factory building were the result of the installation of the machinery. I think your reasoning is right and it would be appropriate to capitalise the costs to the building.
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exIFRS
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Re: PPE- building or machinery

Post by exIFRS »

Yeah, I understand where you are coming from. And if the costs had not added value to the factory, but had been necessary (I have seen examples where a roof had to be removed and then replaced to allow a machine to be dropped by crane into the building) then those would be capitalised to the machine. But here it seems you are effectively upgrading the building, in parallel to installing the machine.
Asnake E
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Re: PPE- building or machinery

Post by Asnake E »

Thank you.
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Marek Muc
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Re: PPE- building or machinery

Post by Marek Muc »

exIFRS wrote: 21 Jan 2022, 09:24 I have seen examples where a roof had to be removed and then replaced to allow a machine to be dropped by crane into the building
interesting example!
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