PAS 16 Property, Plant and Equipment
restoration costs to the extent that they are
Characteristics of PPE
 Tangible assets – items of PPE have physical
substance
 Used in normal operations – items of PPE are
used in the production or supply of goods or
services, for rental, or for administrative
purposes
 Long-term in nature – items of PPE are expected
to be used from more than a year
Examples of items of PPE
 Land used in business
 Land held for future plant site
 Building used in business
 Equipment used in the production of goods
 Equipment held for environmental and safety
reasons
 Equipment held for rentals
 Major spare parts and long-lived stand-by
equipment
 Furniture and fixture
 Bearer plants
Recognition
 The cost of an item of property, plant and
equipment shall be recognized as an asset only
if:
 it is probable that future economic benefits
associated with the item will flow to the entity;
and
 the cost of the item can be measured reliably.
Initial measurement
• Fair value of asset Given up
An item of PPE is initially measured at its cost.
• Fair value of asset Received
• Carrying amount of asset Given up
Elements of Cost
 Purchase price, including non-refundable
purchase taxes, after deducting trade discounts
and rebates.
 Costs directly attributable to bringing the asset
to the location and condition necessary for it to
be capable of operating in the manner intended
by the management.
 Present value of decommissioning and
recognized as obligation
• Examples of directly attributable costs
1. Costs of employee benefits arising directly
from the construction or acquisition of PPE;
2. Costs of site preparation;
3. Initial delivery and handling costs (e.g.,
freight costs);
4. Installation and assembly costs;
5. Testing costs, net of disposal proceeds of
samples generated during testing; and
6. Professional fees.
 Cessation of capitalizing costs to PPE
Recognition of costs in the carrying amount
of an item of PPE ceases when the item is in the
location and condition necessary for it to be capable
of operating in the manner intended by
management.
Measurement of Cost
 The cost of an item of PPE is the cash price
equivalent at the recognition date. If payment is
deferred beyond normal credit terms, the difference
between the cash price equivalent and the total
payment is recognized as interest over the period of
credit unless such interest is capitalized in
accordance with PAS 23 Borrowing Costs.
Acquisition through exchange
 If the exchange has commercial substance, the asset
received from the exchange is measured using the
following order of priority:
 If the exchange lacks commercial substance,
the asset received from the exchange is
measured at (c) above.

Subsequent measurement
Subsequent to initial recognition, an entity shall
choose either:
(a) the cost model or
(b) the revaluation model
as its accounting policy and shall apply that policy to
an entire class of PPE.
Cost Model
After recognition, an item of PPE is measured at its
cost less any accumulated depreciation and any
accumulated impairment losses.
Depreciation
Depreciation is the systematic allocation of the
depreciable amount of an asset over its estimated
useful life.
When computing for 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.
Depreciation begins when the asset is available for
use, i.e., when it is in the location and condition
necessary for it to be capable of operating in the
manner intended by management.
Depreciation ceases when the asset is derecognized
or when it is classified as “held for sale” under PFRS
5, whichever comes earlier.
Selection of depreciation method
There are various methods of depreciation. The
entity shall select the method that most closely
reflects the expected pattern of consumption of the
future economic benefits embodied in the asset.
However, a depreciation method that is based on
revenue that is generated by an activity that includes
the use of an asset is not appropriate.
 The Straight-line method of Depreciation
Straight line method – depreciation is recognized
evenly over the life of the asset by dividing the
depreciable amount by the estimated useful life.
Depreciation = (Historical cost – Residual value) ÷
Estimated useful life
 Changes in depreciation method, useful life, and
residual value
A change in depreciation method, useful life, or
residual value is a change in accounting estimate
accounted for prospectively.
Prospective accounting means the change affects
only the current period and/or future periods. The
change does not affect past periods.
Revaluation Model
 After recognition as an asset, an item of PPE whose
fair value can be measured reliably shall be carried
at a revalued amount, being its fair value at the
date of the revaluation less any subsequent
accumulated depreciation and subsequent
accumulated impairment losses.
Revaluation surplus
Fair value*
xx
Less: Carrying amount
(xx)
Revaluation surplus – gross of tax
xx
*The fair value is determined using an appropriate
valuation technique, taking into account the
principles set forth under PFRS 13.
Frequency of revaluation
For items with significant and volatile changes in fair
value, annual revaluation is necessary. For items
with insignificant changes in fair value, revaluation
may be made every 3 or 5 years.
 Revaluation applied to all assets in a class
If an item of PPE is revalued, the entire class of PPE
to which that asset belongs shall be revalued.
The items within a class of PPE are revalued
simultaneously to avoid selective revaluation of
assets and the reporting of amounts in the financial
statements that are a mixture of costs and values as
at different dates.
Subsequent accounting for revaluation surplus

Revaluation is initially recognized in other

comprehensive income unless the revaluation
represents impairment loss or reversal of
impairment loss, in which case it is recognized in
profit or loss.

Subsequently, the revaluation surplus is accounted

for as follows:

 If the revalued asset is non-depreciable,

the revaluation surplus accumulated in
equity is transferred directly to retained
earnings when the asset is derecognized.

 If the revalued asset is depreciable, a

portion of the revaluation surplus may be
transferred periodically to retained earnings
as the asset is being used.

Derecognition

The carrying amount of an item or PPE shall be

derecognized:

 on disposal; or
 when no future economic benefits are
expected from its use or disposal

END