Indian Accounting Standard (Ind AS) 16 PROPERTY, PLANT & EQUIPMENT

PPE Objective Scope Definitions Recognition Derecognition Disclosure 1 2 Objective Scope 3 4 Definitions Recognition 5 6 Derecognition Disclosure

Furniture and fixtures A Class of PPE Land Land & Properties Machinery Ship Aircraft Motor vehicles Furniture and fixtures Office equipment Bearer plants

Objective Accounting Treatment for property, plant and equipment Recognition of the assets Determination of carrying amounts Depreciation charges and Impairment losses

Scope Standard shall be applied except : Classified as Held for Sale in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations Biological assets related to agricultural activity other than bearer plants The recognition and measurement of exploration and evaluation assets Non-regenerative resources, mineral rights and mineral reserves Ind AS 17, Leases Ind AS 40, Investment Property

Definitions Bearer Plant is Carrying amount is a living plant used in the production or supply of agricultural produce expected to bear produce for more than one period has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses.

Cost is amount of cash or cash equivalents paid fair value of the other consideration given to acquire an asset at the time of its a cquisition or construction Depreciable amount the cost of an asset other amount substituted for cost less its residual value Depreciation systematic allocation amount of an asset over its useful life Entity-specific value (ESV) present value of the cash flows an entity expects to arise from the continuing use of an asset from its disposal at the end of its useful life expects to incur when settling a liability

Fair value (Ind AS 113, Fair Value Measurement) the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date Impairment loss Impairment loss=( carrying amount - recoverable amount) Property, plant and equipment Tangible items Held for use in the production or supply of goods or services For rental to others or for administrative purposes Are expected to be used during more than one period Recoverable amount An asset’s fair value less costs to sell > value in use

Residual value Currently Estimated Amount of Disposal of the asset – Estimated cost of disposal Useful life Period expected to be available for use Number of production or similar units expected to be obtained

Recognition Cost of an Item of PPE Shall be recognized if and only if : Probable that future economic benefits associated with the item the cost of the item can be measured reliably Initial costs Subsequent costs

Spare parts, stand-by equipment and servicing equipment are PPE, meet if and only if otherwise Inventory It may be appropriate to aggregate individually insignificant items, such as moulds, tools and dies, and to apply the criteria to the aggregate value Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it.

an entity does not recognise in the carrying amount of an item of property, plant and equipment the costs of the day day-to-day servicing of the item Parts of some items of property, plant and equipment may require replacement at regular intervals A condition of continuing to operate an item of PPE may be performing regular major inspections for faults regardless of whether parts of the item are replaced (an aircraft )

Elements of cost + Purchase price + Import duties + Non-Refundable Purchase Taxes + Any costs directly attributable + Initial costs of dismantling and removing and Restoring - Trade discounts and rebates

Directly Attributable : costs of employee benefits costs of site preparation initial delivery and handling costs installation and assembly costs costs of testing professional fees

Costs are not part of PPE : Costs of opening a new facility Costs of introducing a new product or service Costs of conducting business in a new location Administration and other general overhead costs

Self-Constructed Asset & Bearer plants Using the same principles as for an acquired asset + Ind AS 23, Borrowing Costs if any

The cost of an item of property, plant and equipment held by a lessee under a finance lease is determined in accordance with Ind AS 17   One or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non monetary assets - is measured at fair value - If not, is measured at the carrying amount of the asset given up

Measurement after recognition Cost model + Cost of PPE - Accumulated depreciation - Impairment losses Revaluation model + Revalued Amount of PPE - Subsequent accumulated depreciation - Subsequent accumulated impairment

Frequency of revaluations depends upon the changes in fair values of PPE - Significant and volatile changes in fair value necessitating Annual Revaluation - Insignificant changes in fair value may be necessary, only every three or five years

REVALUATION OF PPE PPE may be revalued on a rolling basis provided revaluation of the class of assets is completed within a short period the revaluations are kept up to date At the date of the Revaluation If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset.

REVLUATION If carrying amount is Increased shall be recognised in other comprehensive income and accumulated under the heading of revaluation surplus However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluationdecrease of the same asset previously recognised in profit or loss. If carrying amount is Decreased shall be recognised in profit or loss However, the decrease shall be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset

The effects of taxes on income The effects of taxes on income, if any, resulting from the revaluation of property,plant and equipment are recognised and disclosed in accordance with Ind AS 12,Income Taxes

Depreciation Systematic Allocation Cost of PPE Useful Life Depreciation method Depreciation charge

The depreciable amount of an asset shall be allocated on a systematic basis over its useful life The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates,the change(s) shall be accounted for as a change in an accounting estimate in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as long as the asset’s residual value does not exceed its carrying amount. Repair and maintenance of an asset do not negate the need to depreciate it. The depreciable amount of an asset is determined after deducting its residual value.In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount. The residual value of an asset may increase to an amount equal to or greater than the asset’s carrying amount. If it does, the asset’s depreciation charge is zero unless and until its residual value subsequently decreases to an amount below the asset’s carrying amount.

Depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no production all the following factors are considered in determining the useful life of an asset: expected usage of the asset (expected capacity or physical output) expected physical wear and tear technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand legal or similar limits on the use of the asset Land and buildings are separable assets and are accounted for separately, even when they are acquired together. With some exceptions, such as quarries and sites used for landfill, land has an unlimited useful life and therefore is not depreciated. Buildings have a imited useful life and therefore are depreciable assets. An increase in the value of the land on which a building stands does not affect the determination of the depreciable amount of the building.

If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is depreciated over the period of benefits obtained by incurring those costs The depreciation charge for a period is usually recognised in profit or loss. However, sometimes, the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the depreciation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the depreciation of manufacturing plant and equipment is included in the costs of conversion of inventories (see Ind AS 2). Similarly, depreciation of property, plant and equipment used for development activities may be included in the cost of an intangible asset recognised in accordance with Ind AS 38, Intangible Assets

DEPRECIATION METHOD Straight Line – a constant charge over useful life. Diminishing Balance – a decreasing charge over useful life Sum of the units – charge based on expected use or output Review periodically and, if significant, change method to reflect a change in pattern of consumption of future benefits. Account For an a change in according estimate and adjust depreciation charge for current and future period.

Impairment To determine whether an item of property, plant and equipment is impaired, an entity applies Ind AS 36, Impairment of Assets. That Standard explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss.

Compensation for impairment Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up shall be included in profit or loss when the compensation becomes receivable. Impairments or losses of items of property, plant and equipment, related claims for or payments of compensation from third parties and any subsequent purchase or onstruction of replacement assets are separate economic events and are accounted for separately as follows:

impairments of items of property, plant and equipment are recognised in accordance with Ind AS 36; derecognition of items of property, plant and equipment retired or disposed of is determined in accordance with this Standard; compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in determining profit or loss when it becomes receivable; and the cost of items of property, plant and equipment restored, purchased or constructed as replacements is determined in accordance with this Standard.

Derecognition The carrying amount of an item of property, plant and equipment shall be derecognised:   (a) on disposal; or (b) when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit or loss when the item is derecognised (unless Ind AS 17 requires otherwise on a sale and leaseback). Gains shall not be classified as revenue. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

Disclosure The financial statements shall disclose, for each class of property, plant and equipment: the measurement bases used for determining the gross carrying amount; (b) the depreciation methods used; (c) the useful lives or the depreciation rates used; (d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; and (e) a reconciliation of the carrying amount at the beginning and end of the period showing:

(i) Additions; (ii) Assets classified as held for sale or included in a disposal group classified as held for sale in accordance with Ind AS 105 and other disposals; (iii) acquisitions through business combinations; (iv) increases or decreases resulting from revaluations under paragraphs 31, 39 and 40 and from impairment losses recognised or reversed in other comprehensive income in accordance with Ind AS 36; (v) impairment losses recognised in profit or loss in accordance with Ind AS 36; (vi) impairment losses reversed in profit or loss in accordance (vii) depreciation; (viii) the net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency, including the translation of a foreign operation into the presentation currency of the reporting entity; and (ix) other changes.

The financial statements shall also disclose: the existence and amounts of restrictions on title, and property, plant and equipment pledged as security for liabilities; the amount of expenditures recognised in the carrying amount of an itemof property, plant and equipment in the course of its construction  the amount of contractual commitments for the acquisition of property, plant and equipment; and if it is not disclosed separately in the statement of profit and loss, the amount ofcompensation from third parties for items of property, plant and equipment that were impaired, lost or given up that is included in profit or loss

property, plant and equipment, such disclosure may arise from changes in estimates Ind AS 8 : residual values; the estimated costs of dismantling, removing or restoring items of property, plant and equipment; (c) useful lives; and (d) depreciation methods

MUST TO CONSIDER THESE IND AS Ind AS 105, Non-current Assets Ind AS 41, Agriculture Ind AS 106, Exploration for and Evaluation of Mineral Resources Ind AS 17, Leases Ind AS 40, Investment Property Ind AS 102, Share-based Payment Ind AS 113, Fair Value Measurement Ind AS 36, Impairment of Assets Ind AS 19, Employee Benefits Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets Ind AS 23, Borrowing Costs Ind AS 12, Income Taxes Ind AS 38, Intangible Assets Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors

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