Financial Accounting: Property, Plant, and Equipment Analysis

School: Langara College - Course: ACCOUNTING CORE1 - Subject: Accounting

Memo To: Ellen and Joan Harris From: CPA Re: Plant Power Inc. (PPI) #1.Land and Greenhouse - Property, Plant, and Equipment (PP&E) recognition Issue PPI purchased Land and the constructed a Greenhouse on it. The issue is whether the costs should be capitalized. Handbook and analysis ASPE 3061 Property, Plant and Equipment should be consulted. According to ASPE 3061.03 and 3061.04, the Land and Greenhouse are items of PP&E and shall be recorded at cost. Recommendation PPI should record the cost of Land and Greenhouse as part of PP&E #2.Garden improvement - PP&E additions Issue The spending of $20,000 for tilling and fertilizing the soil for gardening doesn't affect the Financial Statement as of June30, because the transaction hasn't occurred until July. But I will also make an analysis here for it to be used after June30. The issue is whether this cost should be capitalized as part of PP&E or expensed in the current year. Handbook and Analysis ASPE 3061.14 state that the cost incurred to enhanced the service potential of an item of PP&E is a betterment. Here the cost enhances the service potential because: -The life of useful life is extended - MET, land is made useful for additional 15 years -Quality of output is improved - MET, it's now can generate rental fee of $3000/year Recommendation This doesn't affect the Financial Statement as of June 30. But in July PPI should capitalize this cost as PP&E as per the analysis above. This will increase capital asset. #3.Special order - Revenue recognition Issue

PPI made a special order of plants from Italy to satisfy the request of a client. The inventory is set aside for the planting scheduled in July, but revenue and cost of sales were recorded. The issue is the Revenue from this Special order should not be recognized in Financial Statement as of June30. Handbook and Analysis APSE 3400 should be consulted. As per handbook, under ASPE, revenue is recognized when the following the criteria are met: -Performance is achieved - Not met: the planting is scheduled the first week of July -Revenue can be measured reliably - Met: the agreed-upon price was $27,000 -Collection is reasonably assured - Uncertain: there is risk that the customer will not remit the consideration. The agreement depends on the result of the inspection prior to planting. And since these plants are ordered specially for this customer, if they didn't meet the expectations of the customer, it seems difficult for PPI to sell them to other customers.