P.Ariyasena
Chief Accountant
Ministry of Foreign Employment Promotion and
Welfare-
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
Scope
 Entities which are prepared their FS on accrual basis
of accounting
 This standard applies to all public sector entities other
than GBEs
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
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
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
Issues in Recognition
 Spare parts and service equipments
 Major spare parts and standby equipments
 Specialized military equipments
 Infrastructure assets
 Initial cost
 Subsequent cost
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
Issues in measurement at
recognition
 Non Exchange Transaction
 Elements of cost
 Directly attributable cost
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
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
Issues in Revaluation
 Market based evidence
 Absence of market Transaction
 Entire class of PPE to be revalued
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
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
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
Depreciation Method
 The depreciation method shall reflect the pattern in
which the asset’s 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
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.
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.
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
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
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
restoring items of PPE
Useful Lives
or
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.
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 item’s fair value as at the date of acquisition
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.
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 asset’s 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