1. P.Ariyasena Chief Accountant Ministry of Foreign Employment Promotion and Welfare-

2. Objective The objective of this Standard is to prescribe the accounting treatment for PPEs The principle issues in accounting for PPEs are Recognition of assets Measurement of Assets Depreciation and Impairment Disclosures

3. Scope Entities which are prepared their FS on accrual basis of accounting This standard applies to all public sector entities other than GBEs

4. Definition PPEs are tangible items that: Are held for use in the production or supply of goods or services for rental to others or for administrative purpose, and Are expected to be used during more than one reporting period

5. Application of the standard This standard applies to PPEs including Specialized military equipments Infrastructure assets This standard does not apply to Biological assets related to agriculture activity Mineral rights and mineral reserves such as oil, natural gas and similar non generative recourses

6. Recognition Criteria The cost of an item of PPE shall be recognized as an assets if and only It is probable that future economic benefits or service potential associated with the item will flow to the entity and The cost or fair value of the item can be measured reliably

7. Issues in Recognition Spare parts and service equipments Major spare parts and standby equipments Specialized military equipments Infrastructure assets Initial cost Subsequent cost

8. Measurement at Recognition 1.An item of PPE qualifies for recognition as asset shall be measured at its cost of acquisition 2.When an assets is acquired through a non exchange transaction, its cost shall be measured at its fair value as at the date of acquisition

9. Issues in measurement at recognition Non Exchange Transaction Elements of cost Directly attributable cost

10. Measurement after Recognition An entity shall choose either the cost model or the valuation model as its accounting policy and shall apply that policy an entire class of PPEs Cost Model After recognition as an asset, an item of PPE shall be carried at its cost less any accumulated depreciation and any accumulated impairment loss

11. Revaluation Model After recognition of an asset,an item of PPE whose fair value can be measured reliably shall be carried at a amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment loss Revaluation shall be made with sufficient regularity to ensure that the carrying amount does not differ materiality from that which would be determined using fair value at the reporting date

12. Issues in Revaluation Market based evidence Absence of market Transaction Entire class of PPE to be revalued

13. Depreciation Each part of an item of PPE with a cost that is significant in relation to the total cost of the item shall be depreciated separately This is known as Component Depreciation The depreciation charge for each period shall be recognized in surplus or deficit

14. Depreciation Amount and Period The depreciable amount of an asset shall be depreciated on a systematic basis over its useful life The residual value and useful life of an asset shall be reviewed at least at each annual reporting date and it expectation differ from previous estimates, the changes shall be encountered for as explained in SLPSAS 03

15. Issues in Depreciation If fair value exceeds its carrying value Assets useful life should be reassessed When residual value is more, depreciation charge is zero Depreciation of an assets ceases when it is derecognized When the item is idle or is retired, depreciation does not ceases

16. Depreciation Method The depreciation method shall reflect the pattern in which the assets future economic benefits or service potential is expected to be consumed by the entity The method applied to an asset shall be reviewed at least at each annual reporting date and if there has been a significant change in the expected pattern of consumption of the future economic benefits or service potential embodied in the asset, the method shall be changed to reflect the changed position

17. Compensation for Impairment Compensation from third parties for items of PPE, that were impaired, lost or given up shall be included in surplus or deficit when the compensation becomes receivable.

18. De- Recognition The carrying amount of an item of PPE shall be de recognized On disposal When no future economic benefits or service potential from its use or disposal The gain or loss arising from the de recognition of an item of PPE shall be included in surplus or deficit when the item is derecognized.

19. Disclosure on PPE The Financial Statements shall disclose for each class of PPE recognized in the FS The measurement bases used for determining the gross carrying amount The depreciation Method used The useful lives or the depreciation rates used The gross carrying amount and the accumulated depreciation at the beginning and end of the period

20. Disclosure on PPE Cont….. A recognition of the carrying amount at the beginning and end of the period showings Additions Disposals Acquit ion through entity combinations Increase or decrease resulting from revaluation and from impairment losses Impairment losses recognized in surplus or deficit

21. Disclosure on Depreciation Depreciation method adopted, the estimated useful lives or depreciation rates to be disclosed In addition, following disclosures are necessary Depreciation, whether recognized in surplus or deficit or as a part of the cost of other asset Accumulated depreciation at the end of the period Residual values of the assets The estimated cost of dismantiling,removing or restoring items of PPE Useful Lives

22. Disclosure on Depreciation in the case of Revaluation The effective date of the revaluation Whether an independent valuer was involved The method and significant assumptions applied in estimating the assets fair values The extent to which the assets fair values were determined directly by reference to observable prices in an active market or recent market transactions on arms' length or were estimated using other valuation techniques.

23. Transitional provisions Entities are not required to recognize PPE for reporting periods beginning on a date five years following the date of first adoption of accrual accounting in accordance with SLPSAS An entity that adopts accrual accounting for the first time in accordance with SLPSAS shall initially recognized PPE at cost of fair value. For items of PPE that were acquired at no cost, or for a nominal cost, cost of the items fair value as at the date of acquisition

24. Transitional provisions Cont …. The entity shall recognized the effect of the initial recognition of PPE as an adjustment to the opening balance of accumulated surpluses or deficits for the period in which the PPE is initially recognized. Prior to first application of this standard, an entity may recognize its PPE on a basis other than cost or fair value as defined in this standard, or may control assets that it has not recognized.

25. Transitional provisions Cont …. Where assets are initially recognized at cost and were acquired at no cost, or for a nominal cost, cost will be determined by reference to the assets fair values as at the date of acuisition.Where the cost of acquisition of an asset is not known, its cost may be estimated by reference to its value as at the date of acquisition. When entities adopt accrual accounting for first time,there are often difficulties in compiling comprehensive information on the existence and valuation of assets