International financial reporting standards for SMES

Property, plant and equipment are tangible assets owned by a company for use in the production or supply of goods and services, to lease them to third parties or for administrative purposes, and are expected to be used for more than one economic period.


  1. They are owned by the company.
    2. They are of a permanent nature.
    3. They are intended for use in the company’s own operations and not for sale.
    4. They have considerable value.
    It is important to note that when an asset fails to meet the objective for which it was acquired, it must be segregated from that group. For example, machinery or vehicles withdrawn from service due to wear, obsolescence or for any other reason, should then be removed from the group of fixed assets.


a.- It is probable that any future economic benefit associated with the element will arrive or leave the entity
b.- The item has a cost or value that can be reliably measured
c.- The entity will recognize the cost of an item of property, plant and equipment as an asset if and only if:
– It is probable that the entity will have the future economic benefits associated with the element.
– The cost of the items can be measured reliably
d.- Important spare parts and permanent maintenance equipment that the entity expects to use for more than one period will also be recognized as property, plant and equipment. The importance is determined based on its representativeness in the total value of the asset.
e.- Land and buildings are separable assets and an entity will account for them separately, even if they had been acquired jointly


At the time of initial recognition, an item of property, plant and equipment will be measured by its COST.

The cost of an item of property, plant and equipment will be the cash equivalent price on the recognition date.

If the payment is deferred beyond normal credit terms, the cost is the present value of all future payments.

They are not components of the Cost
a) Costs of opening a new facility
b) New product introduction costs
c) Costs of opening the business in a new location or redirection to a new type of client
d) Administration costs and other general indirect costs
e) Borrowing costs
They will be recognized as expenses when incurred



Asset swap:

An item of property, plant and equipment can be acquired in exchange for one or more non-monetary assets or for a combination of both.


Cost- Depreciation: Cost less accumulated depreciation and any accumulated impairment losses


It is the systemic distribution of the depreciable amount of an asset throughout its useful life.


It is the cost of an asset or the amount that replaces it (financial statements) less its residual value. An entity shall distribute the depreciable amount of an asset systematically over its useful life.
It will review its estimates, if the current expectations with different, modify the residual value, the depreciation method or the useful life, this is a change of accounting estimate.


It is the estimated amount that an entity could obtain at the present time for the disposal of an asset, after deducting the estimated disposal costs, if the asset had already reached the age and the other conditions expected at the end of its useful life.


– Identify the main components of an item of Property, Plant and Equipment
– Significantly different patterns of economic benefit consumption
– It will distribute the initial cost of the asset among its main components and depreciate each of these separately throughout its useful life.


1.- The expected use of the asset: which must be estimated according to the capacity and physical performance of the asset

2.- The expected physical wear: it depends on operational factors such as number of work shifts, maintenance and repair, care and conservation when not in use

3.- Technical or commercial obsolescence: derived by changes in production or demand.

4.- The legal limits or similar restrictions on the use of the asset.


The «Fixed Assets» are subdivided into two large groups: TANGIBLES AND INTANGIBLES.

1.- Tangible Assets: These are fixed assets of special physical consistency, palpable as evidenced by their name.

When classifying Fixed Assets, within their corresponding sub. Group of “Tangibles and Intangibles”, the Most Fixed must be placed first. Thus we will locate the Land first, than the «Building»; then «Furniture», until reaching those that offer less permanence or durability in the company such as «Vehicles».

Tangible Fixed Assets are subdivided into:

  1. a) From Work:
  • Not subject to depreciation:

Land: This account corresponds to the value of the cost of the plot of land on which the company is built.

  • Subject to Depreciation: Since they suffer loss of value due to use or disuse.

Building: Represents the value of the buildings that have been built on the land owned by the company. These facilities should only be for the operation of the company.

Machinery: Represents the overall value of machinery and production equipment, such as packaging machines, sealing machines, washing machines, labeling machines, industrial equipment, etc.

Furniture: It is the value of the furniture acquired by the company for its use, for example: counters, shelves, filing cabinets, chairs, desks, air conditioning, etc.

Vehicle: Corresponds to the acquisition value of trucks, vans or automobiles that are in service and are owned by the company.

Office Equipment: This account includes typewriters, calculators, photocopiers, adding machines and others.

Represented by those assets that, due to their particular characteristics, are exploited by the company over time, such as:

  1. b) Consumption or subject to depletion: These are those assets that are consumed or depleted as they are extracted.

Coal mines.
Iron mines.
Oil wells.
Timber forests.

2.- Intangible Assets: It is that of an immaterial, intangible nature and constitutes rights for the company, these assets can be:

  1. a) Limited life: They are subject to amortization, since their value over time is decreasing.
    b) Unlimited life: These are not amortized
    Capital gain
    Factory formulas.