MFRS116 PROPERTY,

PLANT AND EQUIPMENT

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 LEARNING OUTCOME
🞂 At the end of this topic, you should be able
to:
🞂 Explain the accounting treatment of
subsequent measurement of property, plant
and equipment.
🞂 Explain the accounting treatment for
derecognition of property, plant and
equipment
🞂 Explain the disclosure requirements of
MFRS 116 on property, plant and
equipment.
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 SUBSEQUENT MEASUREMENT
⚫ After initial measurement at recognition as an
asset, an item of PPE shall be measured based
on either the
● Cost model; or the
● Revaluation model
⚫ The chosen model shall be applied to the
entire class of the PPE

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 PPE MEASUREMENT

MEASUREMENT

Initial Subsequent
measurement measurement

Costs Revaluation
Costs
model model

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 SUBSEQUENT MEASUREMENT
A. COST MODEL

• Asset is carried at its costs less any

accumulated depreciation and any
accumulated impairment losses
• Any increase in the fair value of the PPE
item will not be made or recognised
• Depreciation is based on cost less
residual value
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 SUBSEQUENT MEASUREMENT
B. REVALUATION MODEL

⚫ Asset reflect the fair value

⚫ Depreciation is provided for depreciable
assets
⚫ Applied only for assets whose fair value
can be determined

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 MEASUREMENT AFTER RECOGNITION
B. REVALUATION MODEL

⚫ A class of PPE is a group of assets of similar nature

and use in an entity’s operations, such as Land,
Buildings, Plant and machinery, Ships, Aircraft,
Motor vehicles, Furniture and fixtures, Office
equipment

⚫ Reason – To avoid selective revaluation of assets

where the financial statements will consist of a
mixture of costs and values at different dates

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 REVALUATION MODEL – PROCEDURES
1. ACCUMULATED DEPRECIATION
⚫ Alternative 1:
⚫ Gross carrying amount is restated proportionately
with changes
⚫ Asset now equals the revalued amount

⚫ Alternative 2:
⚫ Accumulated depreciation is eliminated against
the gross carrying amount
⚫ Net amount is adjusted to its fair value

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 INITIAL REVALUATION
2. REVALUATION SURPLUS OR DEFICIT
⚫ WHAT HAPPENS WHEN FAIR VALUE EXCEEDS CARRYING
AMOUNT???

⚫ Surplus on revaluation
⚫ The difference (increase) is credited to revaluation
reserve.

⚫ WHAT HAPPENS WHEN CARRYING AMOUNT EXCEEDS FAIR VALUE

⚫ Deficit on revaluation
⚫ The difference (decrease) is charged against the
current year profit (as an expense in SOPL).
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 SUBSEQUENT REVALUATION
⚫ Surplus on revaluation
⚫ The increase is recognized in profit or loss (as income
in SOPL) to the extent that it reverses a revaluation
decrease of the same asset previously recognized as
an expense

⚫ Deficit on revaluation
⚫ The decrease is charged directly against any related
revaluation surplus to the extent of any credit balance
existing in the revaluation reserve (to the extent that
the decrease does not exceed the amount held in the
revaluation surplus) in respect of that same asset.

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 SUBSEQUENT REVALUATION – LAND (No
Depreciation
⚫ Ramma bought a piece of land in 2011 for
RM5 million.
⚫ FAIR VALUE
⚫ 2013 –RM7 million
⚫ 2015 – RM4 million
⚫ 2017 –RM8 million

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 SUBSEQUENT REVALUATION – LAND
⚫ FAIR VALUE
⚫ 2013 –RM7 million
⚫ 2015 – RM4 million
⚫ 2017 –RM8 million

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 SUBSEQUENT REVALUATION – BUILDING
⚫ On 1 January 2012, Mina Bhd acquired a
building with a useful life of 25 years for RM12
million. Revaluation took place as follows:
⚫ 31 December 2014 – RM 9,900,00
⚫ 31 December 2017 – RM 10,070,000

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 SUBSEQUENT REVALUATION – BUILDING
Year ended 31 December 2014:
Initial cost – 1 January 2012 12,000,000
Accumulated depreciation: 2012 – 2014 (1,440,000*)
Carrying amount as at 31 December 2014 10,560,000
Fair value on 31 December 2014 9,900,000
Deficit on revaluation 660,000

*RM1,440,000 = 12,000,000/25yrs X 3yrs

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 SUBSEQUENT REVALUATION – BUILDING
Year ended 31 December 2017:
Valuation – 1 January 2015 9,900,000
Accumulated depreciation: 2015 – 2017 (1,350,000*)
Carrying amount as at 31 December 2017 8,550,000
Fair value on 31 December 2017 10,070,000
Surplus on revaluation 1,520,000

*RM1,350,000 = 9,900,000/22yrs X 3yrs

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 REALIZATION OF REVALUATION SURPLUS
⚫ Prudence concept – Revaluation surplus
not to be recognised as income in SOPL

⚫ The surplus is credited to retained

earnings when realised:
⚫ Throughout the period when the revalued
depreciable asset is used by the entity –
Amount transferred is the difference between
the depreciation based on the revalued amount
and original cost
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 Revaluation Model
Accounting treatment
1. Initial revaluation (1st time revaluation)
a)Carrying amount is compared with fair value and see
whether the entity has a revaluation surplus/deficit
⚫ FV > CA = revaluation surplus
⚫ FV < CA = revaluation deficit
b)Accumulated depreciation is eliminated (for depreciable
asset only)
2. Subsequent revaluation
⚫The recognition of surplus or deficit depends on whether the
entity has existing surplus or deficit from initial revaluation

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 Revaluation Model – Situation 1

Journal entry
1.Initial revaluation – the entity has surplus
a) Recording surplus
Dr PPE
Cr ARR - surplus
b) Eliminate accumulated depreciation
Dr Accumulated depreciation
Cr PPE

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 Revaluation Model – Situation 1

Journal entry
1.Initial revaluation – the entity has surplus

a) Recording surplus

Dr PPE

Cr ARR - surplus

b) Eliminate accumulated depreciation

Dr Accumulated depreciation

Cr PPE

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 Revaluation Model – Situation 1
Journal entry

2. Subsequent revaluation – the entity has deficit

a) Recording deficit
Dr ARR – deficit (to the extend balance available in ARR a/c)
And
if balance in ARR is not enough, then Dr SOPL – deficit
Cr PPE
b) Eliminate accumulated depreciation
Dr Accumulated depreciation
Cr PPE

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 Revaluation Model – Situation 2

Journal entry
1.Initial revaluation – the entity has deficit
a) Recording deficit
Dr SOPL - deficit
Cr PPE
b) Eliminate accumulated depreciation
Dr Accumulated depreciation
Cr PPE

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 Revaluation Model – Situation 2
Journal entry
2. Subsequent revaluation – the entity has surplus
a) Recording surplus
Dr PPE
Cr SOPL – surplus (to the extend deficit previously recognised in
SOPL)
And
If it is not enough Cr ARR - surplus
b) Eliminate accumulated depreciation
Dr Accumulated depreciation
Cr PPE

⚫Subsequent calculation of depreciation will be based on the CA after

revaluation
⚫Subsequent depreciation
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= CA / remaining useful life
 Impairment of Asset
❑ Definition
Diminution/reduction in value of an asset

❑ An entity need to assess at each reporting date whether there is

indication that an asset may be impaired

Indication of impairment:
⚫ Obsolescence or physical damage to the asset
⚫ Output of an asset has lost its market share
⚫ Technological obsolescence
⚫ PPE maybe in good working condition but asset can no longer
fetch sufficient returns (reduce demand)

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 Impairment of Asset
Indication of impairment:
⚫ Example of indicator of impairment
⚫ Example 1: Machine productivity dropped from 20,000
unit per day to 15,000 unit per day due to old spare parts
⚫ Example 2: license to operate vehicles is withdrawn –
vehicles cannot generate revenues
⚫ Example 3: Because of Covid19, hotels booking decline,
value of hotel building maybe impaired as can no longer
generate revenue (even building in good condition)

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 Impairment of Asset
⚫ To prescribe the procedures that an entity’s assets are
carried out at no more than the recoverable amount.
⚫ Asset is impaired when its carrying amount exceeds its
recoverable amount (Impairment loss)
⚫ CA>RA = IL
⚫ If CA < RA = no impairment
⚫ MFRS 136 requires entity to recognise impairment loss
and reverse the loss when needed

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 Impairment of Asset
⚫ Carrying amount – amount in which asset is recognised
after deducting any acc depn / amortisation

⚫ Fair value less cost to sell – amount from the sale of an

asset less cost of disposal/net selling price

⚫ Value in use – present value expected to be derived from

an asset / PV of future cashflow

⚫ Recoverable amount – amount in which asset is the higher

of its fair value less cost to sell and its value in use.

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 Impairment of Asset
Accounting treatment
1.Identify indicator of impairment
2.Determine the Recoverable amount (RA)
⚫RA: the higher of “fair value less cost to sell” and its “value in use”
3.Calculate the CA.
4.Compare CA and RA. If CA > RA = IL
⚫Example:
CA: Carrying amount = Cost – Acc.dep
= RM20,000-RM4,000
= RM16,000
RA:
⚫SP – Cost to sell = RM13,000
⚫Value in use = RM14,500
⚫RA = 14,500
⚫Since CA>RA – IL
⚫IL = 16,000 – 14,500 = RM1,500
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 Impairment of Asset
Journal entry
Record Impairment Loss RM
Dr SOPL – IL 1,500
Cr Acc. IL 1,500

⚫Subsequent calculation of depreciation will be based on the

CA after IL
⚫ Subsequent depreciation
= CA / remaining useful life

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 DERECOGNITION AND DISPOSAL OF PROPERTY
⚫ A property, plant and equipment item is
derecognised and eliminated from the books upon
disposal.
⚫ Sale
⚫ Entering into a finance lease
⚫ Donation
⚫ Gain or loss arising from disposal is recognised in
the profit or loss and included in the income
statement (subject to MFRS 117 Leases).

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 DERECOGNITION AND DISPOSAL OF PROPERTY
⚫ The amount of gain or loss is the difference
between the net disposal proceeds, if any, and the
carrying amount of the item.
⚫ If an entity that, in the course of its ordinary
activities, routinely sells items of property, plant
and equipment that it has held for rental to others
shall transfer such assets to inventories at their
carrying amount when they cease to be rented and
become held for sale.
⚫ The proceeds from the sale of such assets shall be
recognised as revenue as per MFRS118
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 DERECOGNITION AND DISPOSAL
(REVALUED PROPERTY)

⚫Any remaining revaluation reserve is

transferred to retained earnings when
disposal of the revalued PPE takes
place

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 DERECOGNITION AND DISPOSAL
(REVALUED PROPERTY)

⚫1 January 2013 – Mina Bhd acquired a

plant
⚫ Cost – RM5,000,000
⚫ Estimated useful life – 10 years
⚫1 January 2015 – plant was revalued to
RM5,040,000
⚫31 December 2017 – plant was sold for
RM3,000,000
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 DERECOGNITION AND DISPOSAL
(REVALUED PROPERTY)

Initial cost – 1 January 2013 RM 5,000,000

Accumulated depreciation: 2013 – 2014 (1,000,000)
Carrying amount as at 31 December 2014 4,000,000
Fair value on 1 January 2015 5,040,000
Surplus on revaluation 1,040,000

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 DERECOGNITION AND DISPOSAL
(REVALUED PROPERTY)

Valuation as at 1 January 2015 RM 5,040,000

Accumulated depreciation: 2015 - 2017 (1,890,000)
Carrying amount as at 31 December 2017 3,150,000
Sale proceeds 3,000,000
Loss on disposal 150,000

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 DISPOSAL (REVALUED PROPERTY)
JOURNAL ENTRIES – 31 DECEMBER 2017
Dr. Cash 3,000,000
Dr. Accumulated depreciation 1,890,000
Dr. SOPL – Loss on disposal 150,000
Cr. Plant 5,040,000

Dr. Plant revaluation reserve *1,040,000

Cr. Retained earnings 1,040,000

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 Disclosure
⚫ For each class of PPE:
▪ The measurement bases used for determine the
gross carrying amount
▪ The depreciation method used
▪ The useful life or the depreciation rate used
▪ The gross carrying amount, accumulated
depreciation and accumulated impairment losses
at the beginning and end of the period.

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 Disclosure
▪ A reconciliation of the carrying amount at
the beginning and end of the period
showing:
▪ Additions and Disposals;
▪ Assets classified as held for sale (MFRS 5)
▪ Acquisition through business combination
▪ Increases or decreases during the period resulting from
revaluations
▪ Impairment losses recognized
▪ Impairment losses reversed in the income statement
during the period (if any)
▪ Depreciation charge for the year
▪ Other changes – Reclassification to investment property
(MFRS140)
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NOTES ON PPE:
COST Freehold land Building Motor TOTAL
vehicles

Bal as at /Bal b/d

Purchases/addition
Disposal
*Elimination of depreciation
Revaluation Surplus / (Deficit)
Bal as at/Bal c/d

Accumulated Depreciation
Bal as at/Bal b/d

Depreciation for the year

*Elimination of depreciation
Disposal
Bal as at /Bal c/d

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**Carrying amount
NOTES ON PPE cont.

COST Freehold land Building Motor TOTAL

vehicles

Accumulated Impairment
Bal as at/Bal b/d
Impairment for the year
Bal as at /Bal c/d

**Carrying amount

**If there is impairment loss, please include the movement for

impairment loss template, then you show the carrying amount

The End
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