PwC is pleased to offer our updated accounting and financial reporting guide for Property, plant, equipment and other assets. Although many view the accounting for property, plant, and equipment to be relatively straightforward, there is limited technical guidance and there can be many areas that require judgment. Some areas, such as construction in process, capitalized software, long-lived asset impairment, and asset disposals, can be complex. In addition to these areas, this guide addresses a variety of other topics including the accounting for asset acquisitions, asset retirement obligations, environmental obligations, insurance recoveries, and research and development costs and funding arrangements.
This guide summarizes the applicable accounting literature, including relevant references to and excerpts from the FASB’s Accounting Standards Codification (the Codification). It also provides our insights and perspectives, interpretative and application guidance, illustrative examples, and discussion on emerging practice issues.
This guide should be used in combination with a thorough analysis of the relevant facts and circumstances, review of the authoritative accounting literature, and appropriate professional and technical advice.
References to US GAAP
Definitions, full paragraphs, and excerpts from the FASB’s Accounting Standards Codification are clearly designated, either within quotes in the regular text or enclosed within a shaded box. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC’s original content.
References to other PwC guidance
This guide provides general and specific references to chapters in other PwC guides to assist users in finding other relevant information. References to other guides are indicated by the applicable guide abbreviation followed by the specific section number. The other PwC guides referred to in this guide, including their abbreviations, are:
- Business combinations and noncontrolling interests (BCG)
- Consolidation (CG)
- Derivatives and hedging (DH)
- Equity method investments and joint ventures (EM)
- Fair value measurements (FV)
- Financial statement presentation (FSP)
- Financing transactions (FG)
- Income taxes (TX)
- Leases (LG)
- Revenue from contracts with customers (RR)
- Transfers and servicing of financial assets (TS)
- Utilities and power companies (UP)
Summary of significant changes
The following is a summary of recent noteworthy revisions made to the guide. Additional updates may be made to future versions to keep pace with significant developments.
Revisions made in March 2021
Chapter 4: Capitalization of costs
- PPE 126.96.36.199 was added to include guidance for determining the useful lives of acquired defensive intangible assets.
- Example PPE 4-3 in PPE 188.8.131.52 was updated to include clarifying guidance for calculating depreciation expense when using the sum-of-the-years’-digits method.
Chapter 6: Disposals
- PPE 184.108.40.206 was updated to include additional guidance and practical considerations when accounting for the abandonment of right-of-use assets under ASC 842.
Chapter 8: Other assets
- PPE 8.2.5 was updated to include additional guidance related to accounting for business interruption insurance policy recoveries.
- PPE 8.3.3 was updated to include additional considerations for determining whether research and development (R&D) costs should be capitalized or expensed.
- PPE 8.3.4 through PPE 220.127.116.11 were updated to include interpretive guidance for R&D funding arrangements structured through a newly-created entity (PPE 18.104.22.168) and direct R&D funding arrangements (PPE 22.214.171.124 through PPE 126.96.36.199), including considerations for determining the accounting guidance to apply to these arrangements (e.g., ASC 730-20, ASC 470-10).
Revisions made in October 2020
Chapter 1: Capitalization of costs
- PPE 1.1 and PPE 1.2 were updated to include additional clarifying guidance on property, plant and equipment costs, including the activities necessary to bring the asset to the condition and location for its intended use.
- PPE 188.8.131.52 was updated for the revised definition of a Contribution as a result of ASU 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made.
- PPE 184.108.40.206 was updated to enhance Example PPE 1-6, which illustrates the accounting for a fixed price long-term service agreement that includes a payment for capital spares.
- PPE 220.127.116.11 was updated to include additional guidance related to the risk transfer criteria used to evaluate variable price long-term service agreements.
Chapter 3: Asset retirement obligations
- PPE 3.3.1 was updated to include Question PPE 3-1 which addresses the application of the ARO guidance when there is no legal obligation to retire a long-lived asset.
- PPE 3.3.3 was updated to include clarifying guidance for the application of ASC 410-20 for AROs relating to lease agreements under ASC 842.
- PPE 18.104.22.168 was updated to include additional guidance relating to the recognition and measurement of conditional AROs, including stand-ready obligations and unambiguous obligations with a low likelihood of performance.
- PPE 22.214.171.124 was updated to include additional guidance relating to the determination of the credit-adjusted risk-free rate for subsidiaries within a consolidated group.
- PPE 3.5 was updated to include additional guidance relating to gain recognition upon the settlement of an ARO.
Chapter 7: Capitalized software
- The order of certain sections within Chapter 7 was rearranged, while certain sections were also combined.
- PPE 7.1 was updated to include a decision tree (Figure PPE 7-1) for determining the relevant guidance for costs incurred to obtain or develop software.
- Example PPE 7-4 was added in PPE 7.4.4 to illustrate the allocation of the different elements within a multi-element software arrangement.
- PPE 7.5 was updated to include Figure PPE 7-2, which illustrates the considerations when determining whether a cloud computing arrangement includes only a service or also includes a software license in addition to the service component.
- PPE 7.5.2 and PPE 7.5.3 were added to include guidance on amortization and impairment of costs incurred in a cloud computing arrangement that is a service contract.
- Former PPE 7.4.4, which addressed reporting implications of the cloud computing arrangements guidance has been removed, as the guidance is included in Chapter 8 of PwC’s Financial Statement Presentation guide.
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