Ind AS – 16

Property, Plant and Equipment.

(PPE)
Accountancy and Financial Management
Group A-15
Definition PPE:

Expected to be
Tangible items Held for use in:  used for more
than one period

Production or
supply of goods
or services

For rental to
others

For
administrative
purposes
Other Definitions:
Cost:  Includes   - cash or cash equivalents paid
                              - fair value of any other consideration given
                              - at the time pf acquisition or construction

Depreciable Amount: Includes  - the cost of an asset

                                                                - other amount substituted for cost
                                                                - less its residual value
                                         Calculated as : Cost – Residual/Scrap Value.
Recognition Criteria
PPE is recognized as asset only if:

It is Probable that Future Economic Its Cost can be measured reliably.

Benefits will flow to the entity

Note: Spare parts, stand-by equipment and servicing equipment are treated as PPE if Definition
and Recognition of PPR are met, otherwise the same are treated as Inventory u. IND AS-2.
Depreciation
Methods:
1. Straight Line Method (as a fixed
amount or % of original cost)
2. Written Down Value Method (as a %
of carrying amount, changes every year)
3. Units of Production method.
These methods are recognized under IND
AS-16.
Depreciation Period and timing:
1. Commencement: As soon as asset is
available for use.
2. Cessation: Earlier of - 
a. When classified as to be held for sale
b. When scrapped/sold.
Measurement:
Initial Measurement (At
Cost) to include -

Present Value of Estimated

Purchase Price + Non- Directly attributable costs
Decommissioning Liability
Refundable taxes - Trade (eg. Installation, delivery,
(Removal & restoration
discounts testing)
obligations)
Exchange of Assets (Measurement)
Ordinary transactions:
Asset recorded at:
1. Fair Value of Asset given up + Cash
paid – Cash received (as applicable)
Or
2. Fair Value of Asset acquired,  commercial substance when future cash
- whichever is more clearly evident.
Transactions lacking commercial
substance:
Asset recorded at:
-Carrying amount of Asset given up +
Cash paid – Cash received (as applicable)
-Transaction of exchange is said to lack
flows are expected to remain unchanged.
Subsequent Measurement
Cost Model:
Cost (initially recognised)
Less: Accumulated Depreciation
= Carrying amount.
Here,
- Fair (market) value of asset is ignored.
- Asset is carried at cost initially recognized
with no revision in value or depreciation.
Revaluation Model:
Fair Value on date of revaluation
Less: Subsequent accumulated depreciation
(revised)
= Carrying amount.
- Frequency to revalue: (Once revalued)
Annually if significant changes, else every
3-5 years.
- Once an asset is revalued entire class of
asset should be revalued.
Treatment of Revaluation Gain/ Loss:
Revaluation Gain: Revaluation Loss:

First Time: First Time:

• Transfer to Reserves (earmarked • Transfer to P&L (Loss on
as pertaining to revaluation) revaluation will be shown as
reduction in Net profit)

Subsequent Revaluation Subsequent:

• Gain to the extent of previous • Adjust Loss firstly against
loss(if any) transferred to P&L, balance in Reserves pertaining
excess transferred to Reserves. to revaluation (if any), excess
transferred to P&L.
Component Accounting
- Each Significant Part of PPE with a cost that is significant in relation to the total
cost should be depreciated separately. 
- If Significant parts have same useful life and same depreciation method, then
such parts can be depreciated together.
- When significant part or component is replaced, old carrying value of replaced
part will be derecognised and new carrying value will be recognized.
(Example: Engine, Tyres, Wings of an airplane, etc)
Reference:
- IND AS – 16 Property, Plant and Equipment – Issued by MCA
- ICAI BOS CA Final FRF Ch.7 Unit 2 – IND AS-16
- AS-10 PPE(for resemblance with IND AS-16)

Thank you!