Property, plant and Equipments Property, plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognized in accordance with the specific requirements of other Standards.

Residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Useful life is: (a) the period over which an asset is expected to be available for use by an entity; or (b) the number of production or similar units expected to be obtained from the asset by an entity.

Measurement at Recognition An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.

Examples of directly attributable costs are: a) Costs of employee benefits arising directly from the construction or acquisition of the item of property, plant and equipment; (b) Cost of site preparation; (c) Initial delivery and handling costs; (d) Installation and assembly costs; (e) Costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment); and (f) Professional fees.

Exercise 1 A business imported a plant for its manufacturing factory. Purchase price of the machine is Rs.1,500,000 and 5% trade discount was received from the buyer. Fright and insurance cost of bring the machine to Sri Lanka was Rs.450,000. Import duties and other taxes paid at the port was Rs.350,000. Local transport cost of Rs.50,000 was incurred to bring the plant to the factory. Rs.5,000 wages for laborers and Rs.15,000 professional fee for engineer was paid at the installation of the plant. Fire insurance policy is obtained for the plant and annual insurance premium paid is Rs.55,000. Prior to commence the commercial production, a test run was made by incurring Rs.120,000 cost. Items produced in this test run were sold for Rs.45,000 after incurring Rs.5,000 selling expenses. Required: Calculate Cost of Plant which should be recognized in the financial statements.

Measurement after Recognition   Cost Model After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation. Revaluation Model After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Results of Revaluation Revalued Amount > Carrying Amount = Revaluation Surplus Revalued Amount < Carrying Amount = Revaluation Deficit

Exercise 2 The following balances were extracted from ABC PLC. as at 31.03.2015. Cost Acc. Depn. Land 600,000 - Buildings 400,000 100,000 Motor vehicles 800,000 250,000 These assets were revalued as follows Land – 750,000 Buildings - 450,000 MV- 425,000   Required: Prepare the necessary accounts to record the revelation and show income statement and statement of financial position extracts.

Exercise 3 A business purchased a plant for Rs.3,000,000 on 01.04.2012 and estimated a useful life of 8 years with a residual value of Rs.600,000. On 01.04.2014 this plant was revalued for Rs.2,520,000. Required: Prepare the necessary ledger accounts for from 2010/11 to 2014/15.

Revaluation of Revalued PPE First Time Second Time Accounting Treatment Surplus Recognized under Other Comprehensive Income and Accumulated in Revaluation Reserve Deficit Recognized as an expense in the Profit/ (loss) Reverse the previously recognized Surplus. Any excess over it , Recognized as an expense in the Profit/ (loss) Reverse the previously recognized Surplus. Any excess over it , under Other Comprehensive Income and Accumulated in Revaluation Reserve