The cost of any item of PPE only qualifies as an asset if its cost can reliably be measured, and it is probable that the economic benefits associated with it will flow to the entity. The total costs of PPE include the initial acquisition costs or construction costs and subsequent significant costs incurred in bringing them in their usable condition and position (New Zealand Accounting Standard Board, 2005).


Fonterra Co-operative Group Limited recognizes them in the statement of financial position at cost less accumulated depreciation plus any impairment losses (Fonterra Co-operative Group Limited, 2015, p. 22). Their historical cost is a component of the acquisition cost and expenditure directly attributable to their acquisition such as the direct finance charge.


Depreciation issue


According to the NZASB (2005)’s exposure draft, an entity is required to separately determine how it will depreciate its PPE items especially, where a part of them has a significant cost. Such depreciation is allocated to the property, plant and equipment's useful life. Fonterra Co-operative Group Limited uses straight-line method to allocate depreciation over its property, plant and equipment’s life (Fonterra Co-operative Group Limited, 2015, p. 22).


Impairment issue


The New Zealand Accounting Standard Board (2005)’s exposure draft under NZ IAS 36 Impairment of Assets, an enterprise establishes whether its PPE have been impaired. Fonterra Co-operative Group Limited adjusts its PPE for any impairments losses (Fonterra Co-operative Group Limited, 2015, p. 22).


Evaluation of the Historical Cost Approach


Historical cost is used in making an economic decision since it acts as the basis on which forecasting is made. It is less prone to manipulations since it is based on actual transactions that have been documented. Also, the past transactions records make the historical cost to be a useful controlling tool and thus enhance accountability (Bakar & Said, 2007). The historical cost is also preferred because it survives the test of time. However, this approach suffers some setbacks. It might not be relevant in supporting decision making since it reports past transactions. Also, it is misleading for its inconsistent principles.






Bakar, N. B., & Said, J. M. (2007). Historical Cost Versus Current Cost Accounting. Accountants Today, 20-23.


Fonterra Co-operative Group Limited. (2015). Annual Financial Reports for the Year ended 31st July 2015. Auckland 1142, New Zealand: Fonterra Co-operative Group Limited.


New Zealand Accounting Standard Board. (2005). ED NZ IAS 16 Property, Plant, and Equipment. Wellington: New Zealand Accounting Standard Board.