IAS 16

Property, Plant & Equipment

PPE Recognition

Tangible Assets that are held in use of production, for rentals to others ,or for administrative purposes and which are expected to be used for more than one accounting period. Tangible Assets which will probably generate future economic benefits and the cost of the item can be measured are recognized as assets.

PPE Recognition

Example: Items of Property Plant & Machinery Safety/ Environmental Equipment

Elements of Cost

Purchase Price Cost directly attributable for installation. Borrowing cost if they comply with requirements of IAS 23. Initial estimate of cost of dismantling.

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.

Cost

If the asset is acquired by the entity at the amount initially recognized in accordance with any other standard of IFRSs like IFRS -2 Share based payments under Cash settled share based payments or Equity based share based payments.

Capitalization of Subsequent Cost

Capital Expenditure is one which improves the earning capacity of the asset or it can last for longer time. Revenue Expenditure is one which maintains the existing capacity of the asset.

Comprehensive Components Approach

Each part of an item of PPE with the cost that is significant in relation to the total cost of item should be depreciated separately. If two or more significant parts of an item have same useful life and the depreciation method of this parts may be grouped together to determine the depreciation.
IAS-16 mandates component accounting

Non recurring replacement

If the replacement meets the recognition criteria the cost of new part is added and the cost if old parts deleted from the asset.

Measurement after Recognition

An entity can select any accounting policy from either. Cost Model. Revaluation Model.

Cost v/s Revaluation Model

Cost Model Revaluation Model

Componentization

Componentization

Useful Life

Useful Life

Cost Model

After recognition as an asset an item of PPE should be carried at its cost less any accumulated depreciation and impairment losses.

P P& E -Definitions

Carrying Amount It is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated amortization losses. An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

P P & E -Definitions

Recoverable amount is the higher of the of an assets net selling price and its value in use. Depreciation is based on useful life.

Entity Specific Value

This value is the present value of cash flows and entity expects to arise from continuous use of an asset and from its disposal at the end of its useful life. Recoverable amount is the higher of an assets net selling price and its value in use.

Revaluation Model Highlights

The item of PPE shall be carried at revalued amount and the value to be adopted shall be the fair value at the date of valuation. Revaluations should be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date.

Revaluation Model Highlights

An item of property, plant and equipment is to be revalued for entire class to which the asset belongs revalued.

Revaluation Model Highlights

If an asset's carrying amount is increased as a result of a revaluation the increase: a) Has to be recognized in Revenue to the extent that it reverses a revaluation decrease of the same asset previously recognized as an expense; or b) in all other circumstances, credited directly to equity under the heading of revaluation surplus.

Revaluation Model Highlights

If an asset's carrying amount is decreased as a result of a revaluation the decrease: a) debited directly to equity under the heading revaluation surplus to the extent of any credit balance existing in the revaluation surplus in respect of that asset; or b) in all other circumstances, recognized as an expense in revenue.

Government Grant

Income approach
The grant is treated as income and spread over the period over which depreciation on asset is charged

Government Grant

Capital Approach
Under this approach the amount of grant is directly taken in equity Any one approach is allowed under IFRS but income approach finds more suitability.

Grants - Assets
1.
2.

Reduce from asset Deferred Income

Withdrawal of Grants

1. Increase the carrying Value or 2. Decrease the deferred Income

De-recognition

The carrying amount of PPE should be derecognized on disposal or when no future economic benefit is expected out of asset. The resultant gain should be included in the other income and loss should be recognized in revenue.

Disclosures

The entity should disclose the measurement basis, useful lives, depreciation method and a reconciliation of opening and closing balances detailing out recognition and de recognition ,etc. Disclose the amounts of PPE pledged as security for liabilities.

Disclosures

For PPE stated at revalued amounts, disclose: (a) the effective date of the revaluation; (b) whether an independent valuer was involved; (c) the methods and significant assumptions applied in estimating the items fair values

Disclosures

For borrowing costs disclose The amount of borrowing costs capitalized during the period; and the capitalization rate used to determine the amount of borrowing costs eligible for capitalization.