Carrying amount is the amount at which an asset is recognised after deducting any accumulated

depreciation and accumulated impairment losses.

Cost is the amount of cash or cash equivalents paid or the 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.
Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
Entity-specific value is 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.
Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties
in an arm’s length transaction.
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable
amount.
Property, plant and equipment are tangible items that:
a) are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
b) are expected to be used during more than one period.
Recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use.
The residual value of an asset is 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.
Useful life is:
a) the period over which an asset is expected to be available for use by an entity; or
b) the number of production or similar units expected to be obtained from the asset by an entity.

These questions help you recognize your existing background Yes No

knowledge on the topic. Answer honestly.
Does the standard definition given above match your personal
definition for PPE?
Can you identify PPE from other types of assets, such as
investments?
Have you read the standard for measuring PPE?
Can you determine when to derecognize PPE from the books?
Have you read the standard for presentation and disclosure of PPE?
Total (Raw Score)

IAS 16 Property, Plant and Equipment: Summary 2020 by Silvia of CPDbox.

View at: https://www.youtube.com/watch?v=4caFrcntTi8

IAS 16 — Property, Plant and Equipment

Scope
IAS 16 applies to the accounting for property, plant and equipment, except where another standard requires
or permits differing accounting treatments, for example:
 assets classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations
 biological assets related to agricultural activity accounted for under IAS 41 Agriculture
 exploration and evaluation assets recognised in accordance with IFRS 6 Exploration for and
Evaluation of Mineral Resources
 mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.
The standard does apply to property, plant, and equipment used to develop or maintain the last three categories
of assets. [IAS 16.3]
The cost model in IAS 16 also applies to investment property accounted for using the cost model
under IAS 40 Investment Property. [IAS 16.5]
The standard does apply to bearer plants but it does not apply to the produce on bearer plants. [IAS 16.3]
Recognition
Items of property, plant, and equipment should be recognised as assets when it is probable that: [IAS 16.7]
 it is probable that the future economic benefits associated with the asset will flow to the entity, and
 the cost of the asset can be measured reliably.
This recognition principle is applied to all property, plant, and equipment costs at the time they are incurred.
These costs include costs incurred initially to acquire or construct an item of property, plant and equipment
and costs incurred subsequently to add to, replace part of, or service it.
IAS 16 does not prescribe the unit of measure for recognition – what constitutes an item of property, plant,
and equipment. [IAS 16.9] Note, however, that if the cost model is used (see below) each part of an item of
property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be
depreciated separately. [IAS 16.43]
IAS 16 recognises that parts of some items of property, plant, and equipment may require replacement at
regular intervals. The carrying amount of an item of property, plant, and equipment will include the cost of
replacing the part of such an item when that cost is incurred if the recognition criteria (future benefits and
measurement reliability) are met. The carrying amount of those parts that are replaced is derecognised in
accordance with the derecognition provisions of IAS 16.67-72. [IAS 16.13]
Also, continued operation of an item of property, plant, and equipment (for example, an aircraft) may require
regular major inspections for faults regardless of whether parts of the item are replaced. When each major
inspection is performed, its cost is recognised in the carrying amount of the item of property, plant, and
equipment as a replacement if the recognition criteria are satisfied. If necessary, the estimated cost of a future
similar inspection may be used as an indication of what the cost of the existing inspection component was
when the item was acquired or constructed. [IAS 16.14]
Initial measurement
An item of property, plant and equipment should initially be recorded at cost. [IAS 16.15] Cost includes all
costs necessary to bring the asset to working condition for its intended use. This would include not only its
original purchase price but also costs of site preparation, delivery and handling, installation, related
professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset
and restoring the site (see IAS 37 Provisions, Contingent Liabilities and Contingent Assets). [IAS 16.16-17]
Proceeds from selling items produced while bringing an item of property, plant and equipment to the location
and condition necessary for it to be capable of operating in the manner intended by management are not
deducted from the cost of the item of property, plant and equipment but recognised in profit or loss. [IAS
16.20A]
If payment for an item of property, plant, and equipment is deferred, interest at a market rate must be
recognised or imputed. [IAS 16.23]
If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature), the cost will be
measured at the fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value
of neither the asset received nor the asset given up is reliably measurable. If the acquired item is not measured
at fair value, its cost is measured at the carrying amount of the asset given up. [IAS 16.24]
Measurement subsequent to initial recognition
IAS 16 permits two accounting models:
 Cost model. The asset is carried at cost less accumulated depreciation and impairment. [IAS 16.30]
 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]
The revaluation model
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 balance sheet date. [IAS 16.31]
If an item is revalued, the entire class of assets to which that asset belongs should be revalued. [IAS 16.36]
Revalued assets are depreciated in the same way as under the cost model (see below).
If a revaluation results in an increase in value, it should be credited to other comprehensive income and
accumulated in equity under the heading "revaluation surplus" unless it represents the reversal of a revaluation
decrease of the same asset previously recognised as an expense, in which case it should be recognised in profit
or loss. [IAS 16.39]
A decrease arising as a result of a revaluation should be recognised as an expense to the extent that it exceeds
any amount previously credited to the revaluation surplus relating to the same asset. [IAS 16.40]
When a revalued asset is disposed of, any revaluation surplus may be transferred directly to retained earnings,
or it may be left in equity under the heading revaluation surplus. The transfer to retained earnings should not
be made through profit or loss. [IAS 16.41]
Depreciation (cost and revaluation models)
For all depreciable assets:
The depreciable amount (cost less residual value) should be allocated on a systematic basis over the asset's
useful life [IAS 16.50].
The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if
expectations differ from previous estimates, any change is accounted for prospectively as a change in estimate
under IAS 8. [IAS 16.51]
The depreciation method used should reflect the pattern in which the asset's economic benefits are consumed
by the entity [IAS 16.60]; a depreciation method that is based on revenue that is generated by an activity that
includes the use of an asset is not appropriate. [IAS 16.62A]
The depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits
has changed, the depreciation method should be changed prospectively as a change in estimate under IAS 8.
[IAS 16.61] Expected future reductions in selling prices could be indicative of a higher rate of consumption
of the future economic benefits embodied in an asset. [IAS 16.56]
Depreciation should be charged to profit or loss, unless it is included in the carrying amount of another asset
[IAS 16.48].
Depreciation begins when the asset is available for use and continues until the asset is derecognised, even if
it is idle. [IAS 16.55]
Recoverability of the carrying amount
IAS 16 Property, Plant and Equipment requires impairment testing and, if necessary, recognition for property,
plant, and equipment. An item of property, plant, or equipment 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.
Any claim for compensation from third parties for impairment is included in profit or loss when the claim
becomes receivable. [IAS 16.65]
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]
If an entity rents some assets and then ceases to rent them, the assets should be transferred to inventories at
their carrying amounts as they become held for sale in the ordinary course of business. [IAS 16.68A]
Disclosure
Information about each class of property, plant and equipment
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:
o additions
o disposals
o acquisitions through business combinations
o revaluation increases or decreases
o impairment losses
o reversals of impairment losses
o depreciation
o net foreign exchange differences on translation
o other movements
Additional disclosures
The following disclosures are also required: [IAS 16.74]
 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.
IAS 16 also encourages, but does not require, a number of additional disclosures. [IAS 16.79]
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.
INITIAL AND SUBSEQUENT MEASUREMENT:

1. On January 2, 2020, Lem Corp. bought machinery under a contract that required a down payment of P10,000 plus
twenty-four monthly payments of P5,000 each, for total payments of P130,000. The cash equivalent price of the
machinery was P110,000. The machinery has an estimated; useful life of ten years and estimated residual value of
P5,000. Lem uses straight-line depreciation. In its 2020 income statement, what amount should Lem report as
depreciation for this machinery?

2. Jaen Advertising Inc. reported the following on its December 31, 2020, balance sheet:
Equipment P500,000
Accumulated depreciation—equipment P135,000
In a footnote, Jaen indicates that it uses straight-line depreciation over 10 years and estimates salvage
value as 10% of cost. What is the average age of the equipment owned by Jaen?

3. Laur Company uses the composite method of depreciation and has a composite rate of 25%. During
2020, it sold assets with an original cost of P100,000 and residual value of P20,000 for P80,000 and
acquired P60,000 worth of new assets with residual value of P10,000. The original group of assets had the following
characteristics:
Total cost P250,000
Total residual value 30,000
The above original group includes the assets sold in 2020 but not the assets purchased in 2020. What was the depreciation
in 2020?

4. On the first day of its current fiscal year, Lupao Corporation purchased equipment costing P400,000 with a salvage
value of P80,000. Depreciation expense for the year was P160,000. If Lupao uses the double declining- balance method
of depreciation, what is the estimated useful life of the asset?

5. On January 1, 2018, Famy Company signed an eightyear lease for office space. Famy has the option to renew the
lease for an additional six-year period on or before January 1, 2024. During January 2020, Famy incurred the following
costs.
General improvements to the leased premises with useful life of 10 years P5,400,000
Office furniture and equipment with useful life of 8 years 2,400,000
Moveable assembly line equipment with useful life of 5 years 1,800,000
At December 31, 2020, Famy’s intention as to the exercise of the renewal option is uncertain. A full year depreciation
of leasehold improvement is taken for year 2020. In Famy’s December 31, 2020 balance sheet, accumulated depreciation
of leasehold improvement should be

6. On January 2, 2017, Union Co. purchased a machine for P264,000 and depreciated it by the straight-line method
using an estimated useful life of eight years with no salvage value. On January 2, 2020, Union determined that the
machine had a useful life of six years from the date of acquisition and will have a salvage value of P24,000. An
accounting change was made in 2020 to reflect the additional data. The accumulated depreciation for this machine
should have a balance at December 31, 2020, of

7. On July 1, 2020, New Orleans Corporation purchased equipment at a cost of P340,000. The equipment has an
estimated salvage value of P30,000 and is being depreciated over an estimated life of 8 years under the double-declining-
balance method of depreciation. The depreciation to be recognized in 2020 is

8. Natividad Company purchased a tooling machine in 2010 for P3,000,000. The machine was being depreciated on the
straight-line method over an estimated useful life of twenty years, with no salvage value. At the beginning of 2020,
when the machine had been in use for ten years, the company paid
P600,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the
machine would be extended an additional five years. What should be the depreciation expense recorded for the machine
in 2020?
9. OKC Manufacturing Co., a calendar-year company, purchased a machine for P650,000 on January 1, 2018. At the
date of purchase, OKC incurred the following additional costs:
Loss on sale of old machinery P15,000
Freight cost 5,000
Installation cost 20,000
Testing costs prior to regular operation 4,000
The estimated salvage value of the machine was P50,000, and OKC estimated that the machine would
have a useful life of 20 years, with depreciation being computed using the straight-line method. In January 2020,
accessories costing P48,600 were added to the machine to reduce its operating costs. These accessories neither prolonged
the machine's life nor did they provide any additional salvage value. The depreciation to be recognized in 2020 is

10. On March 31, 2020, Shooter Corp. retired a machine used in manufacturing designer parts. The machine was
acquired May 1, 2017. Straight-line depreciation method was used. The asset had an estimated residual value of P20,000
and a five-year life. On December 31, 2019, the balance in the accumulated depreciation is P330,000. The machine was
scrapped and the company did not receive a single consideration. The loss on retirement is

REVALUATION:

1. On January 1, 2020, the historical balances of the land and building of Twang Company are:
Cost Accumulated
depreciation
Land P 50,000,000 P 0
Building 300,000,000 90,000,000
The land and building were appraised on same date and the revaluation revealed the following:
Fair value
Land P 80,000,000
Building 350,000,000
There were no additions or disposals during 2020. Depreciation is computed on the straight line. The
estimated life of the building is 20 years. The depreciation of the building for the year ended December 31, 2020 should
be

2. The initial application of a policy to revalue assets in accordance with PAS 16, Property, Plant & Equipment
a. Must be treated as an extraordinary event.
b. Must be accounted for as a change in accounting
policy.
c. Must not be accounted for as a change in
accounting policy.
d. May be accounted for in accordance with the
requirements of the Conceptual Framework.

3. If a reporting entity chooses to switch from the cost model to the revaluation model for property, plant and equipment,
the periodic depreciation charge usually will
a. Decrease.
b. Increase.
c. No longer be required.
d. Not be affected

4. Booster Co purchased a building on 1 January 2010 for P1,250,000. At acquisition, the useful life of the building was
50 years. Depreciation is calculated on the straight-line basis. On 1 January 2020, the building was revalued to
P1,600,000. Booster Co has a policy of transferring the excess depreciation on revaluation from the revaluation surplus
to retained earnings. Assuming no further revaluations take place, what is the balance on the revaluation surplus at 31
December 2020?

5. At 1 January 2020, the revaluation surplus of Bloxden was P1,257,000. This was in respect of the company’s head
office. During the year to 31 December 2020, the value of the head office increased by a further P82,000. In the same
period, the company’s factory suffered an impairment of P90,000. What is the value of the revaluation surplus at 31
December 2020?

Use the following information for the next two questions:

The following figures have been extracted from the accounting records of the Twitch Corporation on December 31,
2019:
Cost Accumulated
Depreciation
25-year leasehold factory P50,000,000 P10,000,000
15-year leasehold factory 30,000,000 10,000,000
On January 1, 2020 Twitch had its two leasehold factories revalued (for the first time) by an independent surveyor as
follows:
25-year leasehold P52,000,000
15-year leasehold 18,000,000
Twitch depreciates its leaseholds on a straight-line basis over the life of the lease. The directors of Twitch are
disappointed in the value placed on the 15-year leasehold. The surveyor has said
that the fall in its value is due mainly to its unfavorable location, but in time the surveyor expects its value to increase.
The directors are committed to incorporating the revalued amount of the 25-year leasehold into the financial statements,
but wish to retain the historical cost basis for the 15-year leasehold.
6. The carrying amount of the leasehold factories as of December 31, 2020 should be

7. The revaluation surplus as of December 31, 2020 should be

8. When an entity chooses the revaluation model as its accounting policy for measuring property, plant and equipment,
which of the following statements is correct?
a. Revaluation of property, plant and equipment must
be made at least every three years.
b. When an asset is revalued, the entire class of
property, plant and equipment to which that asset
belongs must be revalued.
c. Increases in an asset’s carrying value as a result of
the first revaluation must be recognized as a
component of profit or loss.
d. When an asset is revalued, individual assets within
a class of property, plant and equipment to which
that asset belongs can be revalued.
Determine whether these statements relate to you. Answer Yes No
honestly to check your progress.
I am able to define property, plant and equipment, and related
terms.
I can identify property, plant and equipment from other types of
assets.
I understand the measuring standard for property, plant and
equipment.
I can determine when to derecognize property, plant and equipment
from the books.
I can determine the presentation and disclosure requirements for
property, plant and equipment.
Total (Raw Score)