Non-current assets

IAS 16 Property, Plant and Equipment

By. Vicky Xu
 IAS 16 Property, Plant and Equipment

1) Definition 定义，是什么？
2) Recognition 确认条件，满足什么条件可以出现在账上？
3) Initial measurement 初始计量，以什么数字出现在账上？
4) Subsequent measurement 后续计量，数字怎样变化？
5) De-recognition 终止确认
6) Disclosure 披露
Definition

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.
Recognition

The cost of an item of property, plant and equipment shall be

recognised as an asset if, and only if:
(a) it is probable that future economic benefits associated with the
item will flow to the entity; and
(b) the cost of the item can be measured reliably.

These recognition criteria apply to subsequent expenditure as well

as costs incurred initially.

Replacement Regular major inspection

Recognition

Subsequent expenditure - Replacement

• IAS 16 recognizes that parts of some items of property, plant,
and equipment may require replacement at regular intervals.
• Costs of replacing components are required to be capitalized.
• The carrying amount of those parts that are replaced is
derecognized in accordance with the de-recognition provisions
of IAS 16.
• → Improve earning capacity
Recognition

Subsequent expenditure - Regular major inspection

• Continued operation of an item of property, plant, and
equipment 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 recognized
in the carrying amount of the item of property, plant, and
equipment as a replacement if the recognition criteria are
satisfied.
• → Improve earning capacity
 2018/12 Q3b Fill

At 30 November 20X6, the directors of Fill estimate that a piece of

mining equipment needs to be reconditioned every two years. They
estimate that these costs will amount to $2 million for parts and $1
million for the labour cost of their own employees. The directors
are proposing to create a provision for the next reconditioning
which is due in two years’ time in 20X8, along with essential
maintenance costs. There is no legal obligation to maintain the
mining equipment.
2018/12 Q3b Fill

As explained above (Q3a), it is expected that there will be future

reductions in the selling prices of coal which will affect the forward
contracts being signed over the next two years by Fill. (discuss later)

The directors of Fill require advice on how to treat the

reconditioning costs and whether the decline in the price of coal is
an impairment indicator. (8 marks) 资本化？费用化？数字是多少？
预计负债？
2018/12 Q3b Fill

Suggested answer:
[资本化的部分包括: 有规律的大修，翻新等] IAS 16 requires
that when each major inspection is performed, its cost is recognised
in the carrying amount of PPE as a replacement if the recognition
criteria are satisfied. The costs of performing a major
reconditioning are capitalised if it gives access to future economic
benefits. Such costs include labour and materials costs $3m.

This should be identified as a separate component of the mine asset

at initial recognition and depreciated over a period of two years.
2018/12 Q3b Fill

[费用化的部分包括: 日常维修费用] However, costs which do

not relate to the replacement of components or the installation of
new assets, such as routine maintenance costs, should be expensed
off as incurred.

[没有义务，不可以计提预计负债] It is not acceptable to accrue

the costs of reconditioning equipment as there is no legal or
apparent constructive obligation to undertake this.
Recognition - Unit of measure for recognition

IAS 16 does not prescribe the unit of measure for recognition, i.e.
what constitutes an item of property, plant and equipment. Thus,
judgement is required in applying the recognition criteria to an
entity’s specific circumstances.

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.
2011/12 Traveler (30/11/2011)

Traveler acquired a new factory on 1 December 2010. The cost of

the factory was $50 million and it has a residual value of $2 million.
The factory has a flat roof, which needs replacing every five years.
The cost of the roof was $5 million. The useful economic life of the
factory is 25 years. No depreciation has been charged for the year.
Traveler wishes to account for the factory and roof as a single asset
and depreciate the whole factory over its economic life. Traveler
uses straight-line depreciation.
2011/12 Traveler (30/11/2011)
Suggested answer:

= 5/5 = 1
Roof

= (50-5-2)/25 = 1.72
Room Total depreciation = 2.72

Dr P/L 2.72
Cr PPE 2.72
Factory
Initial measurement

• An item of property, plant and equipment should initially be

recorded at cost.
• Cost includes all costs necessary to bring the asset to working
condition for its intended use.
• If payment for an item of property, plant, and equipment is
deferred, interest at a market rate must be recognized or imputed
(i.e. present value calculation).
Initial measurement

Cost comprises:
• Purchase price plus import duties and taxes;
• Any costs directly attributable to bringing the asset to the
location and condition necessary for it to be capable of operating
in a manner intended by management, such as cost of site
preparation, initial delivery and handling costs, installation and
testing costs and professional fees for architects and engineers;
• The initial estimate of the costs of dismantling and removing the
item and restoring the site on which it is located (next page);
• Borrowing costs in accordance with IAS 23 (discuss later).
 Initial measurement

• The initial estimate of the costs of dismantling and removing the item
and restoring the site on which it is located.

- There is present obligation (could be legal or constructive)

- To be incurred at the end of useful life, which result in future economic
benefit outflow, and amount can be reliably measured
- Detailed disclosure is required
Initial measurement

Cost excludes:
• Administration and other general overhead costs;
• Start-up and similar pre-production costs;
• Initial operating losses before the asset reaches planned
performance;
• Staff training, etc.
Asset exchange

• 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:
- the exchange transaction lacks commercial substance; or
商业实质，换入资产的未来现金流量在风险、时间和金额方面与
换出资产显著不同。
- 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.
 Asset exchange

With commercial substance Lack commercial substance

1 Fair value of asset given-up Carrying amount of asset
given-up
2 Fair value of asset received
3 Carrying amount of asset given-up

Dr Asset received 得到的资产 – ???

Cr Asset given-up 放弃的资产 – Carrying amount
Cr/Dr Gain or loss – Balancing figure
2015/12 Bubble (31/10/2015)

Bubble wished to expand its overseas operations and on 1 May

2015 acquired an overseas property with a fair value of 58·5 million
dinars. In exchange for the building, Bubble paid the supplier with
land which Bubble had held but had yet to determine its use. The
carrying amount of the land was $5 million but it had an open
market value of $7 million. Bubble was unsure as to how to deal
with this transaction and so has transferred $5 million from
investment properties to property, plant and equipment. The
transaction has commercial substance.
2015/12 Bubble (31/10/2015)

In addition, Bubble spent $0·5 million to help relocate staff to the

new property and added this amount to the cost of the asset. Bubble
has made no other entries in its financial statements in relation to
the property. Bubble has a policy of depreciating properties over 35
years and follows the revaluation model under IAS 16 Property,
Plant & Equipment. Due to a surge in the market, it is estimated that
the fair value of the property is 75 million dinars as at 31 October
2015.
 2015/12 Bubble (31/10/2015)

Dinars to $
1 November 2014 8
1 February 2015 9
1 May 2015 9
31 October 2015 9.5
Average for the year to 31 October 2015 8.5
2015/12 Bubble (31/10/2015)

Suggested answer:
1/5/2015 7 FV of asset given up
Depreciation (0.1) 7/35 * 6/12
CV @31/10/2015 6.9
Revaluation gain 1 Balancing figure
Revalued amount @31/10/2015 7.9 75 dinar/9.5
Asset change Depreciation Revaluation Relocation of staff
Dr PPE 2 Dr P/L 0.1 Dr PPE 1 Dr P/L 0.5
Cr P/L 2 Cr PPE 0.1 Cr OCI 1 Cr PPE 0.5
Subsequent measurement
Cost model
The asset is carried at cost less
accumulated depreciation and
impairment losses.
Revaluation model
The asset is carried at a
revalued amount, being its fair
value at the date of the
revaluation, less subsequent
depreciation, provided that fair
value can be measured reliably.
Cost model

Depreciation
• The depreciable amount is allocated on a systematic basis over
the asset’s useful life;
• The residual value, the useful life and the depreciation method
of an asset are reviewed annually at reporting date;
• Changes in residual value, depreciation method and useful life
are changes in estimates are accounted for prospectively;
• Depreciation is charged to profit or loss;
• Depreciation commences when the asset is available for use
• Revenue based depreciation is prohibited.
 Cost model
5 yrs straight line – UEL 5 - 3 yrs
RV 0-20
20% reducing balance (total/ remaining)
1/1/2017 100 1/1/2017 100 1/1/2017 100
Dep 100/5 (20) Dep 100/5 (20) Dep 100/5 (20)
31/12/2017 80 31/12/2017 80 31/12/2017 80
Dep 80*20% (16) Dep 80/(3-1) (40) Dep (80-20)/(5-1) (15)
64 40 65
2011/6 Rose (30/4/2011)

Rose purchased plant for $20 million on 1 May 2007 with an

estimated useful life of six years. Its estimated residual value at that
date was $1·4 million. At 1 May 2010, the estimated residual value
changed to $2·6 million. The change in the residual value has not
been taken into account when preparing the financial statements as
at 30 April 2011.
2011/6 Rose (30/4/2011)

Suggested answer:
Depreciation = (20-1.4)/6=3.1 p.a.

As at 30/4/2011
Depreciation charged = 3.1
Depreciation should have been charged = 2.7 (see below)
Carry value @ 1/5/2010 = 20-3.1*3 = 10.7
Depreciation – revised = (10.7-2.6)/3 = 2.7

Depreciation overcharged = 0.4

Revaluation model

• Revaluations should be carried out regularly (the carrying

amount of an asset should not differ materially from its fair
value at the reporting date – either higher or lower);
• Revaluation frequency depends upon the changes in fair value of
the items (annual revaluation for volatile items or intervals
between 3 - 5 years for items with less significant changes);
• If an item is revalued, the entire class of assets to which that
asset belongs is required to be revalued;
• Revalued assets are depreciated the same way as under the cost
model.
Revaluation model

• If a revaluation results in an increase in value, it should be

credited to other comprehensive income unless it represents the
reversal of a revaluation decrease of the same asset previously
recognized as an expense, in which case it should be recognized
as income.
• A decrease arising as a result of a revaluation should be
recognized as an expense to the extent that it exceeds any
amount previously credited to the revaluation surplus relating to
the same asset.
 Revaluation model

150
Dr PPE 50
① ② Cr OCI 50 ①

Dr OCI 50 ②
100
③ Dr P/L 30 ③
Cr PPE 80
70
Revaluation model

Recycling/Transfer
• When a revaluation results in an increase in value, the
depreciation amount in the following years would increase due
the revaluation. The additional depreciation amount could be
transferred directly from other comprehensive income in equity
to retained earnings, or it may be left in equity.
• When a revalued asset is disposed of, any revaluation surplus in
other comprehensive income in equity may be transferred
directly to retained earnings, or it may be left in equity.
Revaluation model
Recycling/Transfer
Dr PPE 50 → To depreciate → 0
Cr RS 50 → 结转到OCE

Dr RS 50 Dr RS 5
Excess depreciation
Cr RE 50 Cr RE 5

100 – 10 – 10 – 10 …… = 0
50
150 – 15 – 15 – 15 …… = 0
2010/6 Ashanti (30/4/2010)

Ashanti owned a piece of property, plant and equipment (PPE)

which cost $12 million and was purchased on 1 May 2008. It is
being depreciated over ten years on the straight-line basis with zero
residual value. On 30 April 2009 it was revalued to $13 million and
on 30 April 2010, the PPE was revalued to $8 million. The whole of
the revaluation loss had been posted to other comprehensive income
and depreciation has been charged for the year. It is Ashanti's
company policy to make all necessary transfers for excess
depreciation following revaluation.
 2010/6 Ashanti (30/4/2010)
1/5/2008 12
Depreciation (1.2) 12/10
30/4/2009 10.8
Revaluation gain 2.2
Revalued amount @30/4/2009 13
Depreciation – revised (1.44) 13/9
30/4/2010 11.56
Revaluation loss (3.56) Balancing figure
Revalued amount @30/4/2010 8
Wrong Correct Adjusting entry
Dr OCI 3.56 Dr RE 1.6 Dr RE 1.6
Cr PPE 3.56 Dr OCI 1.96 (2.2-(1.44-1.2)) Cr OCI 1.6
Cr PPE 3.56
De-recognition

• Remove the asset from the statement of financial position on

disposal or when 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 is recognised in profit or
loss.
• When a revalued asset is disposed of, any revaluation surplus
may be transferred directly to retained earnings. The transfer to
retained earnings is not made through profit or loss.
Disclosure

Disclosures include but are not limited to:

• Measurement bases used for determining the gross carrying
amount;
• Depreciation methods used;
• Useful lives or the depreciation rates used;
• Gross carrying amount and the accumulated depreciation at the
beginning and end of the period;
• Existence and amounts of restrictions on title, and PPE pledged
as security for liabilities;
• Contractual commitments for the acquisition of PPE;
Disclosure

• A reconciliation of the carrying amount at the beginning and end

of the period showing: additions / assets classified as held for
sale or included in a disposal group classified as held for sale /
other disposals / acquisitions through business combinations /
changes resulting from revaluations and from impairment losses
recognised or reversed in other comprehensive / impairment
losses recognised in profit or loss / impairment losses reversed
in profit or loss / depreciation / exchange differences / other
changes.
Presentation
Opening balance xx
Addition 买 xx 成本包括1234
Disposal 卖 (xx) 赚或亏 (SOCF)
Depreciation 折旧 (xx) 折旧方法，年限，残值
Revaluation 重估 xx/(xx) 向上OCI向下P/L，除非之前有相
反的变化，Recycling
Closing balance xx

1) 买：弃置费用，资本化借款利息，租赁，公司合并
2) 卖：持有待售的非流动资产
3) 一买一卖：资产置换
Thank You
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