1. PROPERTY, PLANT & EQUIPMENT [IAS 16]
LECTURE OBJECTIVES:
Cost determination of assets
Subsequent expenses
Rehabilitation & Decommissioning
Accounting for component assets
Major components
Collective components
Revaluation of assets
Gross & net replacement methods
Implementation dates
Treatment of reserves
Impairment of assets
Disclosure requirements
PPE - IAS 16

2. PPE [IAS 16] DEFINITION [p6]
NATURE OF PPE
Used to generate revenue
Use in production/supply of goods
Administrative purposes
More than one financial period
CLASSIFICATION
Nature of assets
Land & buildings
Recognised separately
Determine costs separately
Expected useful lives
Land not depreciated
PPE - IAS 16

3. PPE [IAS 16] COMPONENTS CRITERIA: p10 Separately identifiable
Different useful lives
Significant w.r.t. measurement
RECOGNITION: p43 & 44
Significant
Separate asset/component
Similar = group
[Depreciate = separately p44]
Insignificant
Aggregate individual items
[Appropriate rate p45]
Part of remaining principle asset
[Depreciate = principle asset]
PPE - IAS 16

4. PPE [IAS 16] COMPONENTS REPLACEMENT OF PARTS [p70]
INITIALLY RECOGNISED
Derecognised replaced part
Carrying amount
Recognise replacement part
Cost at initial recognition
NOT RECOGNISED
Derecognise the replaced part
At deemed carrying amount
Based on replacement cost
Depreciated cost [used asset]
PPE - IAS 16

5. PPE [IAS 16] SPARE PART & STAND-BY
RECOGNITION: p8
Inventory [insignificant]
Expensed via profit & loss
Major spare part & stand-by
Qualify as PPE
Specific to plant & equipment
Meet asset criteria
RECOGNITION [p10]
Significant
Separate asset/component
Similar = group
Insignificant
Aggregate individual items
Part of remaining principle asset
PPE - IAS 16

6. PPE [IAS 16] EXCHANGE OF ASSETS
DEFINITION: p25
Commercial value
Cash flows differ
Value of entity changes
Difference in fair value of assets
Nature & type of assets exchanged
Similar = no exchange
Dissimilar = transaction
MEASUREMENT: p24 & 26
Fair value at date of exchange
Fair value of asset given
No fair value of asset given up
Fair value of asset receive
No fair value [both assets]
Carrying amount of asset given
PPE - IAS 16

7. PPE [IAS 16] MAJOR INSPECTION
DEFINITION:
Required for continuation of use
[License to operate]
Regular periods specified
RECOGNITION:
Meet definition criteria [asset]
Capitalised & amortised
Not a separate asset
[Related to specific asset]
De-recognised at end of life
PPE - IAS 16

8. PPE [IAS 16] DISMANTLING COST
DEFINITION: p16(c)
Future costs
Provision [IAS 37]
Legal or constructive obligation
Present obligation
RECOGNITON & MEASUREMENT:
Capitalised as part of asset cost
Estimated future costs
Present value [effective rate]
Fair value obligation at year end
[Not affect asset cost]
[Only provision]
PPE - IAS 16

9. PPE [IAS 16] DISMANTLING COST
RE-ASSESMENT: [IFRIC 1]
Estimated cost
Discount rate
Changes occur
Adjust provision
Treated as change in estimate
Adjusted from beginning of year
ACCOUNTING TREATMENT:
Cost model
Adjust cost of asset
Revaluation model
Equity account
Other comprehensive income
PPE - IAS 16

10. PPE [IAS 16] AFTER RECOGNITION
COST MODEL: p30
Carrying amount
Subsequent adjustments
Depreciation
Impairment
REVALUATION MODEL: p31
Fair value measured reliably
Revalued amount at valuation
Revaluation
Regularly [periodic]
Minimise material differences
Subsequent adjustment
PPE - IAS 16

11. PPE [IAS 16] REVALUATION GROSS REPLACEMENT COST: p35 Based on an index
Fair value of new asset
Adjust accumulated depreciation
Proportionately
Against revaluation reserve
NET REPLACEMENT COST: p35(b)
Based on market value
Fair value = current condition
2nd hand market
Eliminated accum depreciation
Against cost of asset
Restated at “carrying amount”
Asset has no history
PPE - IAS 16

12. PPE [IAS 16] REVALUATION IMPLEMENTATION: p36 - 38
All assets in a category/class
Avoid selective revaluation
Date of implementation
Beginning of the year
End of the year
TREATMENT: p
Other comprehensive income
Deferred tax: OCI
Closing transfer
Net amount to balance sheet
PPE - IAS 16

13. PPE [IAS 16] REVALUATION TREATMENT OF SURPLUS [p41]
Deferred tax is not affected
Transfer net amount
Directly to retained earnings
Transfer via SOCE
Transfer [IAS 1 p96]
Not reclassification
Realised on disposal
Transfer on derecognition
Released method
Amortised over remaining life
PPE - IAS 16

14. PPE [IAS 16] IMPAIRMENT DEFINITION [IAS 36 p6]
Carrying amount > recoverable amount
Recognised in P & L
Impairment [IAS 16 p40]
Initial impairment
Subsequent impairment
Loss based on historical cost
Reversal of revaluation surplus
Limited to surplus balance
Via OCI
“True” impairment loss
Via P & L
PPE - IAS 16