IAS-16 Property, Plant and Equipment

Summary

Assets that is held by the company for more than One year

Recognize:

1. If the risks and rewards of the ownership is transferred to the company.

2. Its future benefit tis expected to flow towards the company.
3. Costs can be measured reliably. i.e. Initial Cost and Subsequent cost

Initial Measurement:

Normally done on cost bases

1. It includes the purchase price

2. Any directly attributable cost e.g. delivery, legal cost, testing etc.
3. Removal cost before the disposal of the asset (If any) e.g. nuclear power plant, toxic industries.
4. Deferred costs in case if company is not to pay the full amount at the time of purchase and is
payable in a one or two year or more, get the present value and separate the interest element

Subsequent Measurement:

1. Cost model:
a. (Cost – Accumulated Depreciation -Accumulated impairment
2. Revaluation model:
a. (Fair Value – Subsequent Depreciation – Subsequent impairment)
b. Use it on regular basis

Revaluation:

1. Revalue the entire class of assets

2. In case of Increase; the increase will go to SOCIE under revaluation surplus. It will go to income if
it off sets the previous loss.
3. In case of decrease: It will be treated as Expenses and will go to SOCIE if it offsets the previous
surplus.

Depreciation:

The reduction in the value due to wear and tear

Factors to consider to calculate depreciation;

1. Depreciable amount (Cost – Residual Value)

2. Useful economic life (Time based or production based)
3. Systematic basis (Units produced, Diminishing or Straight line)
4. Components can be depreciated separately. e.g. an aero plane main part may be depreciated
for 20 years, and its engine and interior can be depreciated for 5 years.

Derecognition:

1. Disposal of an asset
2. No economic benefit left
3. Any gain of loss (Disposal proceed – Carrying amount)
4. Transfer the gain or loss to SOCI under other comprehensive income.