IAS 16 PROPERTY, PLANT AND
EQUIPMENT
Presented by Franck Armand
Gueby
Objective
This presentation aims at giving a
general explanation of IAS 16 standard
and see its applicability its strengths and
weaknesses.
OUTLINE
I- HISTORICAL BACKGROUNG OF IA16
II- OBJECTIVE AND SCOPE OF IAS 16
III-RECOGNITION AND MEASUREMENT
IV- MEASUREMENT AFTER RECOGNITION
V- DERECOGNITION AND DISCLOSURE
VI-STRENGTHS AND WEAKNESSES OF IAS 16
INTRODUCTION
International Accounting Standard 16 Property, Plant and
Equipment or also known as IAS 16 is an international financial
reporting standard adopted by the International Accounting
Standards Board (IASB). It is defined as tangible items that 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. This accounting standard
actually concerns accounting for property, plant and equipment
known more generally as fixed assets, including recognition,
determination of their carrying amounts, and
the depreciation charges along with impairment lossesx
CONTINUED
Our presentation will address all these points by first
of all giving a historical background of this standard
along with its objective and scope. Then, in the third
part of our analysis explain its recognition and
measurement together with its measurement after
recognition. The last session of our presentation will
be dealing with the derecognition and disclosure of the
standard and discuss at the time strengths and
weaknesses of IAS 16.
HISTORICAL BACKGROUNG OF IA16
DATE
DEVELOPMENT
August 1980
Exposure Draft
E18 Accounting for
Property, Plant and
Equipment in the
Context of the
Historical Cost
System published
March 1982
IAS 16 Accounting for
Property, Plant and
Equipment issued
1 January 1992
Exposure Draft
E43 Property, Plant
and
Equipment published
COMMENTS
Operative for financial
statements covering
periods beginning on
or after 1 January 1983
CONTINUED
12 December 2013
Amended by Annual
Improvements to
IFRSs 2010–2012
Cycle (proportionate
restatement of
accumulated
depreciation under the
revaluation method)
Effective for annual
periods beginning on
or after 1 July 2014
12 May 2014
Amended
by Clarification of
Acceptable Methods of
Depreciation and
Amortisation
(Amendments to IAS
16 and IAS 38)
Effective for annual
periods beginning on
or after 1 January
2016
30 June 2014
Amended
by Agriculture: Bearer
Plants (Amendments
to IAS 16 and IAS 41)
Effective for annual
periods beginning on
or after 1 January
2016
OBJECTIVE OF IAS 16
The objective of IAS 16 is to prescribe the
accounting treatment for property, plant, and
equipment. The principal issues are the
recognition of assets, the determination of their
carrying amounts, and the depreciation charges
and impairment losses to be recognized in
relation to them.
SCOPE
 IAS 16 applies to all PPE except
 Assets held for sale (IFRS 5)
 Biological assets (IAS 41)
 Exploration and evaluation assets (IFRS 6)
 Investment property (IAS 40)
 Mineral rights and mineral reserves such as oil,
natural gas and similar non-regenerative
resources
RECOGNITION
An item of property, plant and equipment is
only recognized if :
 it is probable that the future economic
benefits associated with the asset will flow
to the entity, and
 nd the cost of the asset can be measured
reliably.
MEASUREMENT
Items of property, plant and equipment should be measured at
cost, which includes its original purchase price, any costs
necessary to bring the asset to the location and condition for its
intended use (e.g. site preparation, delivery and handling,
installation, related professional fees for architects and engineers),
and the estimated cost of dismantling and removing the asset and
restoring the site
MEASUREMENT AT RECOGNITION
The elements of the initial cost of an item of
property, plant and equipment includes all of
the costs of acquisition, construction,
installation and commissioning.
The initial cost excludes promotional,
advertising, administrative or general overhead
expenses including re-location or operating
costs.
MEASUREMENT AT RECOGNITION CONTINUED
The cost of an item of property, plant and
equipment is the cash equivalent price or, in
the case of a item with no cost, its fair value at
the date of acquisition.
MEASUREMENT AFTER RECOGNITION
AS 16 permits two accounting models for
measurement of the asset in periods subsequent
to its recognition, namely the cost model and
the revaluation model.
MEASUREMENT AT RECOGNITION continued
• Under the cost model, the carrying amount of the
asset is measured at cost less
accumulated depreciation and
eventual impairment (similar to the
inventory's Lower of cost or market prudent
principle). Under the cost model, the impairment is
always recognized (debited) as expense.
MEASUREMENT AT RECOGNITION continued
Under the revaluation model, the asset is carried at its
revalued amount, being its fair value at the date
of revaluation less subsequent depreciation and
impairment, provided that fair value can be determined
reliably.
DERECOGNITION
Items of property, plant and equipment are derecognized on
disposal or when no future economic benefit is expected from its
use. An entity should recognize any gain or loss on disposal in its
income statement. The gain or loss on disposal is the difference
between the proceeds received in exchange for the asset disposed
and the carrying amount at the time of disposal.
IMPAIRMENT
The difference between the determined
recoverable amount of an asset and its carrying
value will be applied as an impairment loss or
reversal.
Impairment losses or reversals are applied to
individual assets as an 'Impairment
Adjustment' in the appropriate period.
DISCLOSURE
• IAS 16 requires an entity to disclose in its financial
statements for each class of property, plant and
equipment:
 the basis for measuring carrying amount
 the depreciation method(s) used
 the useful lives or depreciation rates
 the gross carrying amount and accumulated
depreciation and impairment losses
– net foreign exchange differences on translation
– other movements
DISCLOSURE CONTINUED
a reconciliation of the carrying amount at the
beginning and the end of the period, showing:
 Additions
 Disposals
 acquisitions through business combinations
 revaluation increases or decreases
 impairment losses
 reversals of impairment losses
 depreciation
STRENGTHS AND WEAKNESSES OF IAS 16
IAS16 deals with the treatment of property, plant, and
equipments. In that case, it determines how they
should be prices and depreciated. Having said that, we
can argue that it strengths include the use of both cost
and revaluation model, and precise an amortization
calculation. As for the Weaknesses, it can be regarded
as the inability to treat cost of new facility or
producing new product as being capitalized.
CONCLUSION
At the end of our analysis, it appears that IAS16 is a
standard which deals with fixed assets. It in fact helps
solve some problems related to the accounting of
tangible assets. Having said that, we pointed out in our
analysis that it does have some problems that need to
be sorted out to better and ease accounting under this
standard.