Accounting 3AB

Unit 4: Lesson 1

22 February 2023
OBJECTIVE AND SCOPE
OBJECTIVE AND SCOPE
OBJECTIVE
• Accounting treatment of an entity’s property, plant and equipment (PPE)
• Recognition of PPE, determining the carrying amounts, determining the depreciation expense
and impairment losses.

SCOPE
• Applied for accounting for PPE EXCEPT when another standards permits or requires otherwise
Eg. Assets held for sale (IFRS 5).
• Note that IAS 16 also applies to Investment Property carried on the cost model.

3
 RECOGNITION
ROAD MAP Recognition criteria
Initial recognition
IDENTIFICATION Subsequent recognition
Is it PPE? Components
Scope
Definitions

MEASUREMENT

PRESENTATION AND
DISCLOSURE
Face of financial statements vs Initial Subsequent Derecognition
Notes on financial statements Measurement Measurement
Cost Model Disposal
Elements of cost Revaluation Model Scrapping

Depreciation
Revaluation
Impairment

4
IDENTIFICATION
IDENTIFICATION

What is PPE?

Held for use in

production or
For rental to Admin
Tangible items supply of > 1 year
others purposes
goods or
services

6
RECOGNITION
RECOGNITION
When do we recognise PPE?

Recognise ALL COSTS INITIALLY INCURRED to ACQUIRE OR CONSTRUCT AN ASSET

Recognition criteria per IAS 16:

It is probable that
future economic The cost of the item
benefits associated and can be measured
with the item reliably.
will flow to the entity,

What about spare parts, stand-by equipment and servicing equipment?

Are they PPE or Inventory?

8
RECOGNITION
INITIAL COSTS – SAFETY AND ENVIRONMENTAL COSTS
 What about items acquired for safety and environmental reasons?
 Do these items meet the recognition criteria of PPE?

 These costs do not directly increase the future economic benefits of existing PPE BUT, they are
necessary to ensure that the entity obtains the future economic benefits from its other
assets.

 Therefore, these costs meet the recognition criteria and must be recognized.

Think about why this makes sense. Refer back to last week’s coverage of the asset definition and
the definition of an economic resource.

9
RECOGNITION
SUBSEQUENT COSTS

Which costs can be recognized (capitalized)?

Parts/ components replaced regularly are recognised separately.

Derecognise old part when the replacement occurs.

Major inspection.
Recognise cost of major inspection in carrying amount of PPE.

Day to day servicing  Expensed (P/L)

Examples: Repairs and maintenance.
10
THANK YOU