Indian Accounting Standard ( - PowerPoint Presentation

1. Indian Accounting Standard (Ind AS) 16PROPERTY, PLANT & EQUIPMENT

2. PPE

3. A Class of PPE

4. ObjectiveAccounting Treatment for property, plant and equipmentRecognition of the assetsDetermination of carrying amountsDepreciation charges and Impairment losses

5. ScopeStandard shall be applied except :Classified as Held for Sale in accordance with Ind AS 105Non-current Assets Held for Sale and Discontinued OperationsBiological assets related to agricultural activity other than bearer plantsThe recognition and measurement of exploration and evaluation assetsNon-regenerative resources, mineral rights and mineral reservesInd AS 17, LeasesInd AS 40, Investment Property

6. DefinitionsBearer Plant is a living plantused in the production or supply of agricultural produce expected to bear produce for more than one period has a remote likelihood of being sold as agricultural produce, except for incidental scrap salesCarrying amount isthe amount at which an asset is recognizedafter deducting any accumulated depreciation andaccumulated impairment losses.

7. Cost is amount of cash or cash equivalents paidfair value of the other consideration given to acquire an asset at the time of its a cquisition or constructionDepreciable amount the cost of an assetother amount substituted for costless its residual value Depreciation systematic allocationamount of an asset over its useful life Entity-specific value (ESV)present value of the cash flows an entity expects to arise from the continuing use of an assetfrom its disposal at the end of its useful lifeexpects to incur when settling a liability

8. Fair value (Ind AS 113, Fair Value Measurement) the price that would bereceived to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement dateImpairment loss Impairment loss=( carrying amount - recoverable amount) Property, plant and equipment Tangible itemsHeld for use in the production or supply of goods or servicesFor rental to others or for administrative purposesAre expected to be used during more than one period Recoverable amountAn asset’s fair value less costs to sell > value in use

9. Residual valueCurrently Estimated Amount of Disposal of the asset – Estimated cost of disposal Useful lifePeriod expected to be available for useNumber of production or similar units expected to be obtained

10. RecognitionCost of an Item of PPE Shall be recognized if and only if :Probable that future economic benefits associated with the itemthe cost of the item can be measured reliablyInitial costs Subsequent costs

11. Spare parts, stand-by equipment and servicing equipment are PPE, meet if and only if otherwise Inventory It may be appropriate to aggregate individually insignificant items, such as moulds, tools and dies, and to apply the criteria to the aggregate valueCosts 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.

12. an entity does not recognise in the carrying amount of an item of property, plant and equipment the costs of the day day-to-day servicing of the itemParts of some items of property, plant and equipment may require replacement at regular intervalsA condition of continuing to operate an item of PPE may be performing regular major inspections for faults regardless of whether parts of the item are replaced (an aircraft )

13. Elements of cost+ Purchase price + Import duties + Non-Refundable Purchase Taxes+ Any costs directly attributable + Initial costs of dismantling and removing and Restoring- Trade discounts and rebates

14. Directly Attributable : costs of employee benefitscosts of site preparationinitial delivery and handling costsinstallation and assembly costscosts of testingprofessional fees

15. Costs are not part of PPE :Costs of opening a new facilityCosts of introducing a new product or serviceCosts of conducting business in a new locationAdministration and other general overhead costs

16. Self-Constructed Asset & Bearer plants Using the same principles as for an acquired asset+ Ind AS 23, Borrowing Costs if any

17. The cost of an item of property, plant and equipment held by a lessee under a finance lease is determined in accordance with Ind AS 17 One or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non monetary assets- is measured at fair value- If not, is measured at the carrying amount of the asset given up

18. Measurement after recognitionCost model+ Cost of PPE- Accumulated depreciation- Impairment lossesRevaluation model+ Revalued Amount of PPE- Subsequent accumulated depreciation- Subsequent accumulated impairment

19. Frequency of revaluations depends upon the changes in fair values of PPE- Significant andvolatile changes in fair value necessitating Annual Revaluation- Insignificant changes in fair value may be necessary, only every three or five years

20. REVALUATION OF PPE PPE may be revalued on a rolling basis provided revaluation of the class of assets is completed within a short period the revaluations are kept up to date At the date of the RevaluationIf an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued.The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset.

21. REVLUATIONIf carrying amount is Increasedshall be recognised in other comprehensive income and accumulated under the heading of revaluation surplusHowever, the increase shall be recognised in profit or loss to the extent that it reverses a revaluationdecrease of the same asset previously recognised in profit or loss.If carrying amount is Decreasedshall be recognised in profit or lossHowever, the decrease shall be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset

22. The effects of taxes on incomeThe effects of taxes on income, if any, resulting from the revaluation of property,plant and equipment are recognised and disclosed in accordance with Ind AS 12,Income Taxes

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24. The depreciable amount of an asset shall be allocated on a systematic basis over its useful life The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates,the change(s) shall be accounted for as a change in an accounting estimate in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as long as the asset’s residual value does not exceed its carrying amount. Repair and maintenance of an asset do not negate the need to depreciate it. The depreciable amount of an asset is determined after deducting its residual value.In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount. The residual value of an asset may increase to an amount equal to or greater than the asset’s carrying amount. If it does, the asset’s depreciation charge is zero unless and until its residual value subsequently decreases to an amount below the asset’s carrying amount.

25. Depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no productionall the following factors are considered in determining the useful life of an asset:expected usage of the asset (expected capacity or physical output)expected physical wear and teartechnical or commercial obsolescence arising from changes or improvementsin production, or from a change in the market demandlegal or similar limits on the use of the assetLand and buildings are separable assets and are accounted for separately, even when they are acquired together. With some exceptions, such as quarries and sites used for landfill, land has an unlimited useful life and therefore is not depreciated. Buildings have a imited useful life and therefore are depreciable assets. An increase in the value of the land on which a building stands does not affect the determination of the depreciable amount of the building.

26. If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is depreciated over the period of benefits obtained by incurring those costsThe depreciation charge for a period is usually recognised in profit or loss. However, sometimes, the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the depreciation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the depreciation of manufacturing plant and equipment is included in the costs of conversion of inventories (see Ind AS 2). Similarly, depreciation of property, plant and equipment used for development activities may be included in the cost of an intangible asset recognised in accordance with Ind AS 38, Intangible Assets

27. DEPRECIATION METHOD Straight Line – a constant charge over useful life. Diminishing Balance – a decreasing charge over useful life Sum of the units – charge based on expected use or output Review periodically and, if significant, change method to reflect a change in pattern of consumption of future benefits. Account For an a change in according estimate and adjust depreciation charge for current and future period.

28. ImpairmentTo determine whether an item of property, plant and equipment is impaired, an entity applies Ind AS 36, Impairment of Assets. That Standard explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss.

29. Compensation for impairmentCompensation from third parties for items of property, plant and equipment that were impaired, lost or given up shall be included in profit or loss when the compensation becomes receivable.Impairments or losses of items of property, plant and equipment, related claims for or payments of compensation from third parties and any subsequent purchase or onstruction of replacement assets are separate economic events and are accounted for separately as follows:

30. impairments of items of property, plant and equipment are recognised in accordance with Ind AS 36;derecognition of items of property, plant and equipment retired or disposed of is determined in accordance with this Standard;compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in determining profit or loss when it becomes receivable; andthe cost of items of property, plant and equipment restored, purchased or constructed as replacements is determined in accordance with this Standard.

31. DerecognitionThe carrying amount of an item of property, plant and equipment shall be derecognised: (a) on disposal; or(b) when no future economic benefits are expected from its use or disposal.The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit or loss when the item is derecognised (unless Ind AS 17 requires otherwise on a sale and leaseback). Gains shall not be classified as revenue. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

32. DisclosureThe financial statements shall disclose, for each class of property, plant and equipment:the measurement bases used for determining the gross carrying amount;(b) the depreciation methods used;(c) the useful lives or the depreciation rates used;(d) the gross carrying amount and the accumulated depreciation (aggregatedwith accumulated impairment losses) at the beginning and end of the period; and(e) a reconciliation of the carrying amount at the beginning and end of the period showing:

33. (i) Additions;(ii) Assets classified as held for sale or included in a disposal group classified as held for sale in accordance with Ind AS 105 and other disposals;(iii) acquisitions through business combinations;(iv) increases or decreases resulting from revaluations under paragraphs 31, 39 and 40 and from impairment losses recognised or reversed in other comprehensive income in accordance with Ind AS 36;(v) impairment losses recognised in profit or loss in accordance with Ind AS 36;(vi) impairment losses reversed in profit or loss in accordance with Ind AS 36;(vii) depreciation;(viii) the net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency, including the translation of a foreign operation into the presentation currency of the reporting entity; and(ix) other changes.

34. The financial statements shall also disclose:the existence and amounts of restrictions on title, and property, plant and equipment pledged as security for liabilities;the amount of expenditures recognised in the carrying amount of an itemof property, plant and equipment in the course of its construction  the amount of contractual commitments for the acquisition of property, plant and equipment; andif it is not disclosed separately in the statement of profit and loss, the amount ofcompensation from third parties for items of property, plant and equipment that were impaired, lost or given up that is included in profit or loss

35. property, plant and equipment, such disclosure may arise from changes in estimates Ind AS 8 :residual values;the estimated costs of dismantling, removing or restoring items of property, plant and equipment;(c) useful lives; and(d) depreciation methods

36. MUST TO CONSIDER THESE IND ASInd AS 105, Non-current AssetsInd AS 41, AgricultureInd AS 106, Exploration for and Evaluation of Mineral ResourcesInd AS 17, LeasesInd AS 40, Investment PropertyInd AS 102, Share-based PaymentInd AS 113, Fair Value MeasurementInd AS 36, Impairment of AssetsInd AS 19, Employee BenefitsInd AS 37, Provisions, Contingent Liabilities and Contingent AssetsInd AS 23, Borrowing CostsInd AS 12, Income TaxesInd AS 38, Intangible Assets Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors

37. THANK YOUCA. Bhavesh Kumar Gupta+91 9889920616cabhaveshguptaji@gmail.com