IAS 16 – Tangible Non-Current Assets
Three parts:
Talks about Measurement, Depreciation, Revaluation of Assets
IAS 16 :
As per IAS 16 means – Future Economic Benefit
ASSET COST includes everything till you put the asset into use
*Here only Capital Expenditure is taken and not Revenue*
For Dismantling Cost: Calculate PV
In section Measurement :
1) When An Asset is purchased we include everything until the asset is used.
a) The value/amount that helps in maintaining the life of the asset will go
to the P&L account
b) The value/amount that helps increase the asset's life will go to the
balance sheet. (Capitalized)
2) When Coming to Dismantling cost two things are being discussed:
a) To calculate it we must know the PV, calculated using the formula
1/(1+r)^n, which will go to the Balance sheet.
b) The next thing is the interest rate this amount keeps on increasing each
year and this interest amount will be going to Measurement cost (P&L).
3) While Considering Cost, Don’t Consider Abnormal costs / General or
Administration overheads will not be capitalized so that they will be gone
to P&L alc.
In Section Depreciation :
SLM = Cost of the asset – Scrap value / Number of useful years
*The life of the asset is considered from the angle of the Purchaser*
In case of Revision of asset amount of depreciation will be:
Cost of the asset at the time of revision / Remaining useful life
In Section Revaluation :
Two models: Cost Model and Revaluation Model
=> Cost means Historical ( depreciation will change amount is constant)
If the Revaluation Alternative is adopted, two conditions must be complied with:
 Revaluations must subsequently be made with sufficient regularity to
ensure that the carrying amount does not differ materially from the fair
value at each reporting date.
 When an item of property, plant, and equipment is revalued, the entire
class of assets to which the item belongs must be revalued.
Steps for Revaluation :
1. Value of Revaluation = New value – Cost of the asset on the date of
Revaluation i.e. {initial cost of the asset – depreciation till the date of
revaluation}
2. Eliminate any existing accumulated depreciation for the asset.
3. Show the total increase in Other Comprehensive Income, at the foot of the
statement of profit or loss. This would then be taken to the revaluation
surplus (much like the profit for the year gets taken to retained earnings).
4. If Entity follows the transfer of realized amounts to retained Earnings for
Excess depreciation which is part of SOCIE only.(from Illustration 3)
5. In case of Loss on revaluation if any revaluation surplus is available for the
same asset, then deduct from that, or if the Revaluation surplus is not
available charge it to the profit and loss alc.
Journal (assuming the revalued amount is greater than the original cost):
Dr. Non-current assets cost/valuation (revalued amount – cost) - 200
Dr Accumulated depreciation(eliminate accumulated balance) - 144
Cr Other Comprehensive Income (revaluation surplus) – 344
( taken from Illustration no 6 )
Disposal of Non-current Assets: There are two steps to disposing of a revalued asset:
 It should be accounted for in the statement of profit or loss of the period in
which the disposal occurs.
 Any balance on the revaluation surplus relating to this asset should now be
transferred to retained earnings.
(test your understanding 4)