College of Business and Economics

Ramon V. Del Rosario Sr.

Graduates School of Business

PAS16 :
Property, Plant and Equipment
In Partial Fulfilment of the Requirements
in Problems in Financial Reporting.
Date: October 12, 2016
Aguhob, Renz
Carandang, Jamil
Inventor, Maria Jeanette

1
Opening
Prayer
2
Together, let us pray our
Lasallian prayer:
(All) I will continue, O my God, to
do all my actions for the love of
You.

St. John Baptist de La Salle,

(All) Pray for us

Live Jesus in our hearts.

(All) Forever!
3
PAS16 : Agenda

 Scope
 Definition of terms
 Objective
 Initial measurement
 Measurement subsequent to initial recognition
 Depreciation
 Impairment
 Recoverability of the carrying amount
 Derecognition (retirements and disposals)
 Amendments
 Disclosure

4
PAS16 : Property Plant and Equipment

 are tangible items

 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 period.

5
PAS16 : Scope

• This Standard shall be applied in accounting for property,

plant and equipment except when another standard requires or
permits a different accounting treatment.
• This Standard does not apply to:
(a) property, plant and equipment classified as held for sale in
accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations;
(b) biological assets related to agricultural activity (see IAS 41
Agriculture);
(c) the recognition and measurement of exploration and evaluation
assets (see IFRS 6 Exploration for and Evaluation of Mineral
Resources);
(d) mineral rights and mineral reserves such as oil, natural gas and
similar non-regenerative resources.
 However, this Standard applies to property, plant and equipment

used to develop or maintain the assets described in (b)–(d).

6
PAS16 : Definitions of Terms

o Carrying amount- the amount at which an asset is recognised

after deducting any accumulated depreciation and
accumulated impairment losses.
o Cost- is the amount of cash or cash equivalents paid orthe fair
value of the other consideration given to acquire an asset
at the time of its acquisition or construction or, where
applicable, the amount attributed to that asset when
initially recognised in accordance with the specific
requirements of other IFRSs, eg IFRS 2 Share-based
Payment.
o Depreciable amount- the cost of an asset, or other amount
substituted for cost, less its residual value
o Depreciation- the systematic allocation of the depreciable amount
of an asset over its useful life.
o Entity-specific value-the present value of the cash flows an entity
expects to arise from the continuing use of an asset and
from its disposal at the end of its useful life or expects to
incur when settling a liability

7
PAS16 : Definitions of Terms

o Fair value-the amount for which an asset could be exchanged

between knowledgeable, willing parties in an arm’s length
transaction
o Impairment loss-the amount by which the carrying amount of an
asset exceeds its recoverable amount
o Recoverable amount- the higher of an asset’s fair value less costs
to sell and its value in use
o Residual value-the estimated amount that an entity would
currently obtain from disposal of the asset, after deducting
the estimated costs of disposal, if the asset were already of
the age and in the condition expected at the end of its
useful life.
o Useful life-the period over which an asset is expected to be
available for use by an entity; or
-the number of production or similar units expected to be
obtained from the asset by an entity

8
PAS16 : Objective

o To prescribe the accounting treatment for property, plant, and

equipment

o Recognition of assets

o The determination of their carrying amount

o The depreciation charges and impairment losses to be recognised

9
 PAS16 : Recognition of cost of PPE as assets

• 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.

 This recognition principle shall be applied to all costs at the time they are incurred,
both incurred initially to acquire or construct an item of PPE and incurred
subsequently after recognition to add to, replace part of or service it.

10
PAS16 : Initial measurement

1. Purchase Price
• import duties, non-refundable purchase taxes, after deducting trade
discounts and rebates

2. Costs directly attributable

• Employee benefits
• Costs of site preparation
• Initial delivery and handling costs
• Installation and assembly costs
• Costs of testing
• Professional fees

3. Initial estimate of the costs of dismantling and removing

the item and restoring the site on which it is located.

 Capitalized Interest/Borrowing cost

11
PAS16 : Initial measurement

12
PAS16 : Initial measurement

13
PAS16 : Measurement subsequent to initial
recognition
o Cost model
-> The asset is carried at cost less accumulated depreciation and
impairment. [IAS 16.30]

o Revaluation model
-> The asset is carried at a revalued amount, being its fair value at the
date of revaluation less subsequent depreciation and impairment,
provided that fair value can be measured reliably. [IAS 16.31]

14
 PAS16 : Measurement subsequent to initial
recognition - Revaluation Model

 A property was purchased on 1 January 20X0 for $2m (estimated

depreciable amount $1m – useful economic life 50 years). Annual
depreciation of $20,000 was charged from 20X0 to 20X4 inclusive
and on 1 January 20X5 the carrying value of the property was $1.9m.
The property was revalued to $2.8m on 1 January 20X5 (estimated
depreciable amount $1.35m – the estimated useful economic life
was unchanged). Show the treatment of the revaluation surplus and
compute the revised annual depreciation charge.

15
 PAS16 : Measurement subsequent to initial
recognition - Revaluation Model

 The property referred to in the previous example

was revalued on 31 December 20X6. Its fair value
had fallen to $1.5m. Compute the revaluation
loss and state how it should be treated in the
financial statements.

16
PAS16 : Depreciation

17
PAS16 : Depreciation

18
PAS16 : Impairment

19
 PAS16 : Recoverability of the carrying amount

o PAS16-> requires impairment testing and, if necessary,

recognition for PPE. These shall not be carried at more than
recoverable amount. Recoverable amount is the higher of an
asset's fair value less costs to sell and its value in use.

20
 PAS16 : Recoverability of the carrying amount

 An asset has a carrying value of $600,000.

It is classified as held for sale on 30
September 20X6. At that date its fair
value less costs to sell is estimated at
$550,000 and its value in use is $580,000.

21
PAS16 : Derecognition (retirements and
disposals)
An asset should be removed from the statement of financial
position on disposal or when it is withdrawn from use and no future
economic benefits are expected from its disposal. The gain or loss on
disposal is the difference between the proceeds and the carrying amount
and should be recognised in profit and loss. [IAS 16.67-71]

22
PAS16 : Amendments

What Has Changed?

The IASB decided that bearer plants should be accounted for in the
same way as property, plant and equipment in PAS 16 Property, Plant and
Equipment, because their operation is similar to that of manufacturing.
Consequently, the amendments include them within the scope of PAS 16,
instead of PAS 41. Since bearer plants will now be within the scope of PAS
16 and will be subject to all of the requirements therein. This includes the
ability to choose between the cost model and revaluation model for
subsequent measurement.

The amendment defines a bearer plant as a living plant that:

• used in the production or supply of agricultural produce

• is expected to bear produce for more than one period;
• And has a remote likelihood of being sold as agricultural produce,
except for incidental scrap sales

23
PAS16 : Amendments

Revenue-based depreciation not appropriate

What has changed?

The depreciation method used shall reflect the pattern in which the
asset’s future economic benefits are expected to be consumed by the
entity. IAS 16 and IAS 38 Intangible Assets, both establish the principle for
the basis of depreciation and amortization as being the expected pattern of
consumption of the future economic benefits of an asset.

The IASB has clarified that the use of revenue-based methods

to calculate the depreciation of an asset is not appropriate because revenue
generated by an activity that includes the use of an asset generally reflects
factors other than the consumption of the economic benefits embodied in
the asset. Thus, revenue-based methods to calculate depreciation of
property plant and equipment is prohibited under the amended IAS 16.

24
PAS16 : Disclosure

For each class of property, plant, and equipment, disclose: [IAS 16.73]:

 basis for measuring carrying amount

 depreciation method(s) used

 useful lives or depreciation rates

 gross carrying amount and accumulated depreciation and impairment

losses
 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, net foreign
exchange differences on translation, other movements

25
 PAS16 : Disclosure

Additional disclosures:
 restrictions on title and items pledged as security for liabilities

 expenditures to construct property, plant, and equipment during the

period
 contractual commitments to acquire property, plant, and equipment
 compensation from third parties for items of property, plant, and
equipment that were impaired, lost or given up that is included in profit
or loss.

Revalued property, plant and equipment

 If property, plant, and equipment is stated at revalued amounts, certain

additional disclosures are required: [IAS 16.77]

 the effective date of the revaluation

 whether an independent valuer was involved

 for each revalued class of property, the carrying amount that would have
been recognised had the assets been carried under the cost model
 the revaluation surplus, including changes during the period and any
restrictions on the distribution of the balance to shareholders.

26
Sample Disclosure – SMB 2015 Annual Report

27
Sample Disclosure – SMB 2015 Annual Report

28
Sample Disclosure – SMB 2015 Annual Report

29
Thank You!

30