IAS 16 Property Plant &
Equipment
Mark Fielding-Pritchard
Mark Fielding-Pritchard
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Overview
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Meaning
Scope and objectives
Exclusions
Definitions
Initial recognition
Measurement of Cost
Subsequent Recognition
Subsequent costs
Spare parts
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Overview
Impairment
 De recognition
 Revaluation
 Depreciation
 Disclosures
 Decommissioning, restoration and
similar liabilities
 Summary
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Mark Fielding-Pritchard
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Meaning
Property plant and equipment :
 Tangible assets
 Held for :
 Use in the production or supply of
goods or services
 Rental to others
 Administrative purposes
 Assets held by a lessee under finance
lease is also included in this category
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Scope and Objectives
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Timing of recognition
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Determination of carrying amount on
initial recognition
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Subsequent measurement
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Depreciation
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Derecognition
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Disclosures
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Exclusions
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PPT held for sale – IFRS 5
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Biological assets related to agricultural
activity – IAS 41
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Exploration and evaluation assets –
IFRS 6
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Mineral rights and mineral reserves
like oil and natural gas etc
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Initial recognition
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Recognition criteria:
Expenses on acquisition or
construction of an asset is recognised if
the following conditions are met:
It is probable that future economic
benefits associated with the asset will
flow
> Transfer of risks and rewards passed
to the enterprise
Cost of the assets can be reliably
measured
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Measurement of Cost
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Initial Measurement
@ cost
Cost consist of:
Purchase price net off discounts and rebates
but including import duties and non
refundable taxes
Direct costs incurred in bringing the asset to
the working condition
Initial estimated costs of decommissioning,
restoration and other obligations
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Subsequent Recognition
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It is done either under cost model or revaluation
model
Cost Model
Asset is carried at cost less accumulated depreciation
less accumulated impairment losses
Revaluation Model
Asset is carried at revalued amount less accumulated
depreciation and accumulated impairment losses
Revaluation is applied to all assets belonging to same
class and revaluation is carried out for the class as
whole at regular intervals – Buildings, Plant etc
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Subsequent costs
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They are usually expensed
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Added to the cost of the asset if:
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Modification – Extends useful life or
increases its capacity
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Upgrading to achieve substantial
improvement in quality
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New process resulting in reduced operating
costs
Mark Fielding-Pritchard
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De recognition
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An asset is derecognised only on two
conditions:
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1. On disposal
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2. No further economic benefits are
expected to be derived from the asset
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Gains or losses are recognised in the
profit and loss account
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Revaluation
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Entire Class of asset should be revalued
Rolling basis is permitted
Basis of revaluation is “fair value”
What constitutes fair value?
Mostly market value
Increase in the carrying amount on account of
revaluation is accounted as revaluation surplus in
comprehensive income statement
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Revaluation
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To the extent of the revaluation loss
charged off earlier in respect of the
same asset could be credited to
Income Statement
Revaluation loss is charged to Income
Statement , however, if there exists
any revaluation surplus in respect of
the same asset it can be set off to the
possible extent
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Depreciation
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Review of residual value at each FY end is to be
done
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Depreciation is taken as a charge even if the
fair value is more than depreciable amount
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No need for depreciation if the residual amount
exceeds the carrying amount
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Depreciation is chargeable if the asset is
available for use and ends if the asset is
classified as held for sale as per IFRS 5
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It does not end due to idleness or even if it is
retired from active use
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Component model
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Each part of PPE is to be depreciated
separately
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Eg: Air frame and engine of aircraft
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For each part cost is allocated, useful life,
residual value is determined and
depreciation is calculated
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Disclosures
Some of the items include:
 Measurement bases
 Methods of depreciation
 Useful life or rate of depreciation
 Reconciliation of carrying amount
 Revaluation disclosures
 Impairment
 Details of idle and retired properties
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Decommissioning, restoration
and similar liabilities
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Accounting treatment based on the
following:
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IFRIC 1 covers the changes in existing
decommissioning, restoration and
simlar liabilities
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IFRIC 5 right to interest arising from
de commissioning, restoration and
environmental and rehabilitation
funds
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Recognition
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Decommissioning and other related costs
are treated as a part of the cost of PPE
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Provision for liability is created under IAS
37 – Provisions, Contingent liabilities and
Contingent Assets
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