1. IAS 16 Property Plant Equipment

2. 1. Non-Current Assets Statement of Financial Position
The recognition of assets (Cost)
The determination of their carrying amounts (NBV)
The depreciation charges and any losses relating to them.

3. 2. Accounts NCA Cost Account Disposals Account Depreciation Account
Revaluation Reserve Account
Bank Account

4. 3. IAS 16
Consistent principles applied to the initial measurement of the asset
Determination of their carrying value is consistent
Depreciation is calculated consistently and recognised
Sufficient disclosure for users

5. 4. Initial Recognition - Cost
2 Condition for recognition
Future economic benefit will flow from the item to the business
The cost can be measured reliably
COST
Purchase Price – import duties, tax, construction, professional fees
Cost of Purchase – delivery, installation, assembly
Cost of dismantle – disposal, site restoration
Borrowing Cost – interest on purchase, construction

6. Expenses rather than cost
Cannot include
cost of storage while waiting to use NCA
Initial operating losses as a result of asset output
Cost of business relocation
Design errors
Wastage
Industrial disputes

7. 5. Capitalisation
Including items other than purchase price of the asset
Don’t debit the expense account (SP&L)
Debit the asset account (SFP)
If they were to be written off as an expense in one year it would not reflect the substance of the transaction

8. Paul Boyle incurs the following costs in relation to the construction of a new factory and the introduction of its products to the local market. How much of the costs should be capitalised?
COSTS
CAPITALISED - ANSWER
€’000
Site preparation costs
240
Materials used
1,500
Labour costs, including €90,000 incurred during an industrial dispute. No construction occurred during the period of the dispute.
3,190
Testing of various processes in factory
150
Consultancy fees re installation of equipment
220
Relocation of staff to new factory
110
General overheads
500
Costs to dismantle the factory at end of its useful life in 10 years time
100
€’000
Site preparation costs
240
Materials used
1,500
Labour costs, 3190 – 90
3,100
Testing of various processes in factory
150
Consultancy fees re installation of equipment
220
Relocation of staff to new factory -
General overheads
Costs to dismantle the factory at end of its useful life in 10 years time
100

9. Enhancement costs
Enhancement costs which significantly enhance the economic benefits by increasing the capacity, improving the quality of output, extending the economic life of the asset or by reducing the operating costs of the assets can be capitalised.
The replacement costs of major components and overhaul costs which improve the economic benefit that can be generated can also be capitalised.
Where NCA consists of a number of assets of different economic lives, it may be appropriate to recognise and account for each component separately for depreciation and inclusion of subsequent expenses.
The component approach is also applied where regular major inspections of an asset are a condition of continuing to use it. The cost of each inspection is treated as a separate item (replacement), provided recognition criteria are satisfied. Any remaining carrying amount in respect of the previous inspection is derecognised.

10. 6 Measurement subsequent to initial recognition
IAS 16 sets out two models for measuring PPE subsequent to its initial recognition as an asset. These are the ‘cost model’ and the ‘revaluation model’
Cost
Cost less any accumulated depreciation and any accumulated impairment losses.
Revaluation
Revalued amount, being fair value less accumulated depreciation and impairment losses.
IAS 16 defines fair value as ‘the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction’.
Where an item is revalued, all other assets in the same class should also be revalued.
Revaluations should be carried out regularly

11. 7 Depreciation
Depreciation begins when the asset is available for use and continues until the asset is derecognised – even if idle
The depreciation amount should be allocated systematically over its useful economic life
Depreciation method should reflect the patter in which the economic benefits of the assets are consumed.
Depreciation for accounting period = expense
Depreciation for the period + Accumulated Dep

12. Depreciation Methods
Straight line
Reducing balance

13. 8 De-recognition When an asset is removed from the books
Disposal
No further economic benefit
Gain or loss on disposal = Net sale – NBV
Recognised in Stmt of P&L

14. 9. Disclosure
For each class of property, plant and equipment the following should be disclosed:
Basis for measuring the carrying amount (cost)
Depreciation method used
Useful life or depreciation rate
Reconciliation of the carrying amount at the beginning and end of the period
Additions
Disposals
Revaluation Movement
Depreciation
Any other Movements
Restrictions on title
Expenditures to construct
Commitments to acquire

15. Disclosure on Revaluation
Additional disclosure requirements for revaluation
Date of revaluation
Independent valuer involved
Methods and assumptions used
Carrying amount under the cost model
The revaluation surplus

16. 10 Impairment
IAS 36
An asset is impaired when its carrying amount exceeds its recoverable amount

17. 2. Accounts NCA Cost Account Disposals Account Depreciation Account
Revaluation Reserve Account
Bank Account

18. Disposal Credit Cost A/C Debit Acc Depreciation A/C
Post Sale Price to Debit Bank A/C
Double entries in Disposals A/C
Balance on Disposal = Profit & Loss

19. Q Bank balance 120,000 Plant & Equip cost 840,000 Acc Dep 370,000
Plant cost 100,000 with a NBV 40,000 sold for 45,000 on 1/12/xx
New plant purchased 180,000 on 1/10/xx
10% depreciation PA straight line with proportionate charge on year of acquisition and none on year of disposal

20. Depreciation
840,000 – 100,000 = 740,000 x 10% = 74,000
180,00 x 10% 18,000 pa / 2 = ,000
83,000

21. Plant & Equipment Cost A/C Plant & Equipment Acc Depreciation A/C
1/4/xx
Balance
840,000
1/12/xx
Disposals
100,000
1/10/xx
Bank
180,000
Plant & Equipment Acc Depreciation A/C
1/12/xx
Disposals
60,000
1/4/xx
Balance
370,000
31/12/xx
P&L (10%)
83,000
Disposal A/C
1/4/xx
Cost
100,000
1/12/xx
Acc Dep
60,000
31/12/xx
P&L (profit)
5,000
Bank
45,000
Bank A/C
1/4/xx
Balance
200,000
1/10/xx
P&Equip
180,000
1/12/xx
Disposal
45,000

22. Revaluation Debit/Credit Cost A/C Giving it current value
Debit Acc Dep A/C Reducing Dep to zero
Double entry in Revaluation Reserve A/C
Balance =
SFP Equity: Revaluation Reserve
SCI Profit/Loss on Revaluation

23. Upward Revaluation Cost 500,000 Depreciation 100,000
Dr Cost
Dr Dep
Cr Rev Res

24. Plant & Equipment Cost A/C 31/12/xx Balance 500,000 Balance c/d 700,00
Revaluation Reserve
200,000
Plant & Equipment Acc Depreciation A/C
31/12/xx
Revaluation Reserve
100,000
Balance c/d
Revaluation Reserve A/C
31/12/xx
Balance c/d
300,000
Buildings
200,000
Acc Dep
100,000
Page 93
Statement of Comprehensive Income (extract)
Other Incomes
Gain on Revaluation 300,000
Statement of financial position (extract)
Property, plant and equipment 700,000
Equity: Revaluation Surplus 300,000

25. Downward Revaluation Buildings cost 500,000 Depreciation 100,000
Cr Cost
Dr Dep
Dr/Cr Rev Res

26. Plant & Equipment Cost A/C 31/12/xx Balance 500,000
Revaluation Reserve
40,000
Balance c/d
460,000
Plant & Equipment Acc Depreciation A/C
31/12/xx
Revaluation Reserve
100,000
Balance c/d
Revaluation Reserve A/C
31/12/xx
Building
40,000
Acc Dep
100,000
Balance c/d
60,000
Page 93
Statement of Comprehensive Income (extract)
Other Incomes:
Gain on Revaluation 60,000
Statement of financial position (extract)
Property, plant and equipment 460,000
Equity: Revaluation balance 60,000