1. IAS 16 Property Plant & Equipment-
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2. Overview Meaning Scope and objectives Exclusions Definitions
Initial recognition
Measurement of Cost
Subsequent Recognition
Subsequent costs
Spare parts
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3. Overview Impairment De recognition Revaluation Depreciation
Disclosures
Decommissioning, restoration and similar liabilities
Summary
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4. Meaning Property plant and equipment : Tangible assets Held for :
Use in the production or supply of goods or services
Rental to others
Administrative purposes
Assets held by a lessee under finance lease is also included in this category
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5. Scope and Objectives Timing of recognition
Determination of carrying amount on initial recognition
Subsequent measurement
Depreciation
Derecognition
Disclosures
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6. Exclusions PPT held for sale – IFRS 5
Biological assets related to agricultural activity – IAS 41
Exploration and evaluation assets – IFRS 6
Mineral rights and mineral reserves like oil and natural gas etc
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7. Initial recognition Recognition criteria:
Expenses on acquisition or construction of an asset is recognised if the following conditions are met:
It is probable that future economic benefits associated with the asset will flow
> Transfer of risks and rewards passed to the enterprise
Cost of the assets can be reliably measured
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8. Measurement of Cost Initial Measurement @ cost Cost consist of:
Purchase price net off discounts and rebates but including import duties and non refundable taxes
Direct costs incurred in bringing the asset to the working condition
Initial estimated costs of decommissioning, restoration and other obligations
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9. Subsequent Recognition
It is done either under cost model or revaluation model
Cost Model
Asset is carried at cost less accumulated depreciation less accumulated impairment losses
Revaluation Model
Asset is carried at revalued amount less accumulated depreciation and accumulated impairment losses
Revaluation is applied to all assets belonging to same class and revaluation is carried out for the class as whole at regular intervals – Buildings, Plant etc
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10. Subsequent costs They are usually expensed
Added to the cost of the asset if:
Modification – Extends useful life or increases its capacity
Upgrading to achieve substantial improvement in quality
New process resulting in reduced operating costs
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11. De recognition An asset is derecognised only on two conditions:
1. On disposal
2. No further economic benefits are expected to be derived from the asset
Gains or losses are recognised in the profit and loss account
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12. Revaluation Entire Class of asset should be revalued
Rolling basis is permitted
Basis of revaluation is “fair value”
What constitutes fair value?
Mostly market value
Increase in the carrying amount on account of revaluation is accounted as revaluation surplus in comprehensive income statement
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13. Revaluation
To the extent of the revaluation loss charged off earlier in respect of the same asset could be credited to Income Statement
Revaluation loss is charged to Income Statement , however, if there exists any revaluation surplus in respect of the same asset it can be set off to the possible extent
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14. Depreciation Review of residual value at each FY end is to be done
Depreciation is taken as a charge even if the fair value is more than depreciable amount
No need for depreciation if the residual amount exceeds the carrying amount
Depreciation is chargeable if the asset is available for use and ends if the asset is classified as held for sale as per IFRS 5
It does not end due to idleness or even if it is retired from active use
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15. Component model Each part of PPE is to be depreciated separately
Eg: Air frame and engine of aircraft
For each part cost is allocated, useful life, residual value is determined and depreciation is calculated
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16. Disclosures Some of the items include: Measurement bases
Methods of depreciation
Useful life or rate of depreciation
Reconciliation of carrying amount
Revaluation disclosures
Impairment
Details of idle and retired properties
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17. Decommissioning, restoration and similar liabilities
Accounting treatment based on the following:
IFRIC 1 covers the changes in existing decommissioning, restoration and simlar liabilities
IFRIC 5 right to interest arising from de commissioning, restoration and environmental and rehabilitation funds
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18. Recognition
Decommissioning and other related costs are treated as a part of the cost of PPE
Provision for liability is created under IAS 37 – Provisions, Contingent liabilities and Contingent Assets
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