FACT SHEET AASB 116 Property, Plant and Equipment

OBJECTIVE
The objective of this standard is to account for property, plant and equipment, principally its initial
recognition and subsequent treatment through a choice of two methods (cost and revaluation). The standard
covers most physical assets unless the asset is specifically covered by another standard (such as inventory
and biological assets).

KEY REPORTING REQUIREMENTS

1. Recognition of an asset occurs when (paras. 7–10):
• the future economic benefits associated with the asset will flow to the enterprise, and
• the cost of the asset can be measured reliably.
2. Upon initial measurement an asset should be measured at cost (para. 13) where cost includes:
• getting the asset ready for its intended use, such as delivery, site preparation and installation
(paras. 16–22)
• the cost of restoring a site, such as dismantling and removal (as per AASB 137)
• interest expense if the asset is a qualifying asset (as per AASB 123).
3. Where measurable, cost is considered to be the fair value of the asset (including for non-commercial
transactions and not-for-profit entities). If not measurable, cost is the carrying amount of an asset being
given up (paras. 23–28).
4. Post recognition, an asset is measured using either the cost or revaluation model (para. 29).
5. Under the cost model:
• An asset is carried at cost less any accumulated depreciation and impairment losses (para. 30).
• In calculating depreciation, each part of the asset should be depreciated separately where feasible
(paras. 43–47).
• Depreciation expense should be included in profit and loss (paras. 48–49).
• Depreciation should be allocated on a systematic basis over the life of the asset using a method that
best reflects the use of the asset (paras. 50–62).
• Assets should be impaired in accordance with AASB 136.
6. Under the revaluation model:
• Revaluations should be carried out regularly, so that the carrying amount of an asset does not differ
materially from its fair value at the end of the reporting period (paras. 31–34).
• Revalued assets are depreciated in the same way as under the cost model (para. 35).
• If an asset is revalued then all assets within that class should be revalued (paras. 36–38).
• If a revaluation results in an increase in value, it should be credited to equity under ‘Asset Surplus’
unless it represents the reversal of a previous revaluation decrease of the same asset, in which case it
should be recognised as income to the extent of the previous decrease (para. 39).
• If a revaluation results in an decrease in value, it should be expensed unless it represents the reversal
of a previous revaluation increase of the same asset in which case it should be debited to equity under
Asset Surplus to the extent of the previous increase (para. 40).
7. Disclosures:
• For each class of property, plant, and equipment, disclose (para. 73):
− the basis for measuring the carrying amount
− the depreciation method(s) used
− the useful lives or depreciation rates
− the gross carrying amount and accumulated depreciation and impairment losses
− a reconciliation of the carrying amount at the beginning and the end of the period, showing all
changes.
• Also disclose (para. 74):
− restrictions on title
− expenditures to construct property, plant and equipment during the period
− commitments to acquire property, plant and equipment

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 − 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.
• If property, plant and equipment is stated at revalued amounts, provide additional disclosures
(para. 77), including:
− the effective date of the revaluation
− whether an independent valuer was involved
− the methods and significant assumptions used in estimating fair values
− the extent to which fair values were determined directly by reference to observable prices in an
active market or recent market transactions on arm’s length terms or were estimated using other
valuation techniques
− 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 distribution restrictions.

CHANGES ON THE HORIZON

No changes on the horizon.

GAAP DIFFERENCES

AASB 116 IAS 16

Additional paragraphs to cover not-for-profit Applies only to trading entities.

organisations.

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