1. IAS 16 : Tangible Assets
The Institute of Chartered Accountants of India (Set up by an Act of Parliament)

2. Scope, Objective and Definition
IAS 16
Tangible items which (for Intangibles – refer to IAS 38 )
are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
are expected to be used during more than one period.
Property, Plant and Equipment
Other related accounting standards
Investment Property (IAS 40)
Borrowing Costs (IAS 23)
Leases (IAS 17)
Intangible Assets (IAS 38)
Impairment (IAS 36)

3. Key Features Combination of AS 6 & AS 10
Cost of decommissioning liability to be included
Component Accounting
Revaluation to be recognized on regular basis
Accounting for land and building seperately

4. Definition and Scope Scope
The standard applies to accounting for all property, plant and equipment (PPE) except when
another standard requires or permits a different accounting treatment
Exclusions
PPE classified as held for sale (IFRS 5)
Biological assets related to agricultural activity (IAS 41)
EXCEPT:
PPE used to develop or maintain these assets
Mineral rights and mineral reserves such oil, natural gas and similar non-regenerative resources
Recognition and measurement of exploration and evaluation assets (IFRS 6) 4

5. Recognition PPE is recognised as an asset when
Future economic benefits are probable, and
Cost can be measured reliably
PPE is measured initially at cost
Criteria apply to all costs when incurred, including Initial acquisition or construction costs and subsequent costs (covered later) 5

6. Cost of Acquired or Self-Constructed Assets
INCLUDES
EXCLUDES
Purchase price (including import duties
and non-refundable purchase taxes)
Less
any discounts or rebates deducted
implicit interest in deferred payment
Plus
borrowing costs in the case of “qualifying assets” (refer IAS 23)
any other directly attributable costs (e.g. employee benefits, site preparation, initial delivery and handling costs etc.)
initial estimate of costs of dismantling & removing the item & restoring the site on which it is located
Costs related to
Abnormal amounts of wasted material, labour and other resources
Opening a new facility
introducing a new product or service (including costs of advertising and promotional activities)
Conducting business in a new location or with a new class of customer (including costs of staff training)
Administration & other general overhead costs
Using or redeploying an item
Certain incidental operations
Period when construction is interrupted, unless certain criteria are met 6

7. Cost of PPE acquired in exchange of Another Asset
Cost of exchanged asset is measured at fair value unless
Exchange transaction lacks commercial substance, or
Fair value of neither asset received nor given up can be measured reliably
Fair value of asset given up is used, unless fair value of asset received is more clearly evident
Cost of PPE acquired in exchange of another Asset OR
If not measured at fair value, carrying amount of the asset given up becomes the new cost

8. Subsequent Costs
Subsequent costs are capitalised only if they meet general recognition criteria
Future economic benefits are probable
Cost can be measured reliably
Costs of day-to-day servicing are expensed as incurred
Recognise cost of replacing part of PPE item when incurred
Recognise major inspection cost in the carrying amount as replacement if recognition criteria is met
Any remaining carrying amount of cost of previous inspection is derecognised
Derecognise replaced parts (physical or otherwise) in accordance with de-recognition provisions of the standard 8

9. Measurement after Recognition
Cost model – Depreciate cost over useful life
Revaluation Model – Depreciate revalued amount over useful life 9

10. Revaluation Model
Revaluation model can be adopted for assets whose fair value can be measured reliably
Asset to be carried at fair value on date of revaluation
Revaluation should be done regularly
If an item of PPE is revalued – revalue entire class to which the asset belongs
To adjust accumulated depreciation at the date of the revaluation either:
Restate it proportionately with the change in the gross carrying amount of the asset so that carrying amount after revaluation equals revalued amount, or
Eliminate it against the gross carrying amount of the asset and restate the net amount to the revalued amount of the asset 10

11. An Item of PPE with original value at 120 and accumulated depreciation of 20 with net block at 100 is revalued to 150
Particulars
Original Value
Revalued
Gross Block
120
180
150
Less Accumulated Depreciation 20 30
Net Block
100

12. Revaluation Model Revaluation increases credited to
Profit or loss to the extent they reverse previous revaluation decrease of that asset recognised in profit or loss
Otherwise, OCI and accumulated in equity as revaluation surplus
Revaluation decreases debited to
OCI to the extent of credit balance in revaluation surplus related to that asset
Otherwise, profit or loss
The revaluation surplus may be transferred to retained earnings when the asset is derecognised or as it is used by the entity

13. Depreciation
Each part of a PPE whose cost is significant in relation to the total cost of the PPE is to be depreciated separately
Depreciable amount determined after deducting residual value
Depreciable amount to be allocated on a systematic basis over the useful life
Depreciation method should reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity 13

14. Depreciation
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
Review at least at each financial year end:
Residual value
Useful life
Depreciation method
Changes in above are changes in estimate and should be accounted for as per IAS 8 in current and future periods only 14

15. Component Accounting Initial recognition
Allocate cost to significant parts of asset, including non-physical parts
Depreciation for each ‘component’ to be charged separately
Example:
Aircraft costs 200, useful life 10 years
Estimated cost of a significant component - 50, to be replaced after 3 years
COMPONENT 1
COST: 150
LIFE: 10 YEARS
TOTAL AIRCRAFT COST = 200
COMPONENT 2
COST: 50
LIFE: 3 YEARS
CAPITALISE AS INCURRED 15

16. IFRIC 1 Changes in existing Decommissioning, Restoration and Similar Liabilities
Changes due to a change in
estimated timing and amount of payments
discount rate
are added to/deducted from cost of underlying asset and depreciated prospectively over remaining useful life
Foreign exchange gains and losses may be recognised in profit or loss or adjusted against cost of PPE 16

17. IFRIC 1 Changes in existing Decommissioning, Restoration and Similar Liabilities
Applies regardless of accounting policy (cost or revaluation model) but implementation varies
Cost model
Changes in liability added/deducted from asset cost in current period
No negative carrying amount possible; any excess recognised immediately in profit or loss
Increase in carrying amount triggers consideration of impairment, including, if necessary, calculation of recoverable amount 17

18. IFRIC 1 Changes in existing Decommissioning, Restoration
and Similar Liabilities
Revaluation model
Change in liability does not affect valuation of asset (impact on valuation reserve)
Decrease in liability is recognised in revaluation surplus except for:
reversal of revaluation deficit recognised previously in P/L
if results in negative depreciated cost
Increase in liability is recognised in profit/ loss except when there is credit balance remaining in revaluation surplus
A change in liability indicates that asset might have to be revalued in order to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period 18

19. De-recognition Derecognise carrying amount of an item of PPE
on disposal, or
when no future benefits expected from use or disposal
Date of disposal to be determined on the basis of IAS 18
Difference between carrying amount and net disposal proceeds is recognised as gain/loss in profit and loss account
Gains (or proceeds) are not classified as revenue 19

20. De-recognition
Exception: when an entity routinely sells items of PPE that it has held for rental, it transfers them to inventory at the carrying amount when they cease to be rented. The proceeds from sale are treated as revenue
Consideration receivable on disposal of PPE to be measured at fair value
If payment for an item of PPE is deferred – consideration is recognised initially at the cash price equivalent
Difference between nominal amount of consideration and cash price equivalent recognised as interest revenue as per IAS 18 reflecting the effective yield on the receivable 20

21. Compensation for Impairment, Loss or Surrender
Compensation from third parties for items of PPE that were impaired, lost or given up shall be included in the profit or loss when the compensation becomes receivable
Impairments – in accordance with IAS 36
De-recognition – in accordance with IAS 16
Compensation from third parties – include in profits or loss when it becomes receivable (in accordance with IAS 16)
Cost of PPE restored, purchased or constructed as replacements is determined in accordance with IAS 16 21

22. Disclosures Measurement basis
Depreciation methods, useful lives or depreciation rates used
Gross carrying amount and accumulated depreciation at the beginning and end of the period
Reconciliation of the carrying amount at the beginning and end of the period showing additions, assets classified as held for sale, acquisitions through business combination, increase or decrease from revaluation, impairment loss etc.
Existence and amount of restrictions on title to PPE; PPE pledged as security for liabilities
Amount of expenditure recognised in the carrying amount of PPE during construction
Commitments for acquisition of PPE 22

23. Disclosures
Compensation from third parties for PPE that were impaired, lost or given up
Specific disclosures have also been prescribed for revalued assets such as:
Effective date of revaluation
Whether an independent valuer was involved, methods and significant assumptions applied in estimating fair values
Extent to which fair values were determined based on observable prices in an active market or recent market transactions on arm or other valuation techniques
Carrying amount of each class of revalued PPE as if under the cost model
Revaluation surplus, including change for the period and any restrictions on distribution of balance to shareholders 23

24. Borrowing Costs Scope Apply in accounting for borrowing costs
An entity need not apply the standard to borrowing costs related to acquisition, construction or production of:
a qualifying asset measured at fair value; or
inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis
Borrowing Costs
Borrowing costs are interest and other costs incurred by an entity in connection with the borrowing of funds and includes:
Interest expense calculated using the effective interest rate method as described in IAS 39;
finance charges in respect of finance leases (as in IAS 17); and
exchange differences to the extent that they are regarded as an adjustment to interest costs
Does not include actual or imputed cost of equity

25. Qualifying Assets and Costs eligible for capitalisation
An asset that necessarily takes a substantial period of time to get ready for its intended use or sale
Depending on the circumstances, any of the following may be qualifying assets:
Inventories, manufacturing plants, power generation facilities, intangible assets, investment properties

26. Qualifying Assets and Costs eligible for capitalisation
Borrowing costs eligible for capitalisation are those directly attributable to
acquisition, construction or production of a qualifying asset which would have been
avoided otherwise
Specific borrowings
Actual borrowing costs less any investment income on the temporary investment of borrowed funds
General borrowings
Use weighted average borrowing rate as capitalisation rate and the expenditure on the asset to calculate eligible amount

27. Period of Capitalisation
Expenditure begins
Borrowing costs incurred
Activities in progress
Activities suspended
Activities suspended, but substantial technical or admin work
Asset is ready for intended use
Funds borrowed
Start to use
% to deduct
Start
Start
Continue
Suspend
Stop

28. Commencement, Suspension and Cessation of Capitalisation
Commencement of Capitalisation
Suspension of Capitalisation
Commence capitalisation when entity:
incurs expenditures for the asset AND
incurs borrowing costs, AND
undertakes activities necessary to prepare asset for intended use or sale
Suspend capitalisation during extended periods in which active development is suspended
Do not suspend in case of :
temporary delay that is caused by external event
interruption caused by technical or legal obstructions that are a typical part of process
activities suspended, but substantial technical or admin work to be carried out
Cessation of Capitalisation
Cease capitalisation when substantially all activities necessary to prepare the qualifying asset for intended use or sale are complete

29. Disclosures Amount of borrowing costs capitalised during period
Capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation

30. Impairment – Assessment and Loss Recognition
Assess at each balance sheet date indicators of impairment
If indication exists, measure and recognise impairment in accordance with IAS 36, Impairment of Assets
Compare carrying amount with the recoverable amount
Recoverable amount is higher of fair value (less costs to sell) and value in use
Recognise impairment loss as expense immediately
Unless carried at revalued amount (treat as revaluation)
Depreciation in future to be calculated on the basis of the new carrying amount 30