Mark FieldingPritchard Mark FieldingPritchard 1 Overview Meaning Scope and objectives Exclusions Definitions Initial recognition Measurement of Cost Subsequent Recognition Subsequent costs ID: 653198
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IAS 16 Property Plant & Equipment
-Mark Fielding-Pritchard
Mark Fielding-Pritchard
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Overview
MeaningScope and objectivesExclusionsDefinitions
Initial recognition
Measurement of Cost
Subsequent Recognition
Subsequent costsSpare parts
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Overview
ImpairmentDe recognitionRevaluationDepreciation
Disclosures
Decommissioning, restoration and similar liabilities
Summary
Mark Fielding-Pritchard3Slide4
MeaningProperty plant and equipment :
Tangible assetsHeld for :Use in the production or supply of goods or servicesRental to others
Administrative purposesAssets held by a lessee under finance lease is also included in this category
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Scope and ObjectivesTiming of recognition
Determination of carrying amount on initial recognitionSubsequent measurementDepreciation Derecognition
Disclosures
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ExclusionsPPT held for sale – IFRS 5
Biological assets related to agricultural activity – IAS 41Exploration and evaluation assets – IFRS 6Mineral rights and mineral reserves like oil and natural gas etc
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Initial recognition
Recognition criteria:Expenses on acquisition or construction of an asset is recognised if the following conditions are met:
It is probable that future economic benefits associated with the asset will flow
> Transfer of risks and rewards passed to the enterprise
Cost of the assets can be reliably measured
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Measurement of CostInitial Measurement
@ costCost consist of:Purchase price net off discounts and rebates
but including import duties and non refundable taxes
Direct costs incurred in bringing the asset to the working condition
Initial estimated costs of decommissioning, restoration and other obligations
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Subsequent RecognitionIt is done either under
cost model or revaluation model
Cost Model
Asset is carried at cost less accumulated depreciation less accumulated impairment losses
Revaluation Model
Asset is carried at revalued amount less accumulated depreciation and accumulated impairment lossesRevaluation is applied to all assets belonging to same class and revaluation is carried out for the class as whole at regular intervals – Buildings, Plant etc
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Subsequent costsThey are usually expensed
Added to the cost of the asset if:Modification – Extends useful life or increases its capacityUpgrading to achieve substantial improvement in quality
New process resulting in reduced operating costs
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De recognitionAn asset is
derecognised only on two conditions:1. On disposal 2. No further economic benefits are expected to be derived from the asset
Gains or losses are recognised
in the profit and loss account
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Revaluation
Entire Class of asset should be revaluedRolling basis is permittedBasis of revaluation is “fair value”
What constitutes fair value?Mostly market value
Increase in the carrying amount on account of revaluation is accounted as revaluation surplus in comprehensive income statement
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RevaluationTo the extent of the revaluation loss charged off earlier in respect of the same asset could be credited to Income Statement
Revaluation loss is charged to Income Statement , however, if there exists any revaluation surplus in respect of the same asset it can be set off to the possible extentMark Fielding-Pritchard
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Depreciation
Review of residual value at each FY end is to be doneDepreciation is taken as a charge even if the fair value
is more than depreciable amountNo need for depreciation if the residual amount exceeds the carrying amount
Depreciation is chargeable if the asset is available for use and ends if the asset is classified as held for sale as per IFRS 5
It does not end due to idleness or even if it is retired from active use
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Component modelEach part of PPE is to be depreciated separately
Eg: Air frame and engine of aircraftFor each part cost is allocated, useful life, residual value is determined and depreciation is calculated
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DisclosuresSome
of the items include:Measurement basesMethods of depreciation
Useful life or rate of depreciationReconciliation of carrying amount
Revaluation disclosures
Impairment
Details of idle and retired propertiesMark Fielding-Pritchard
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Decommissioning, restoration and similar liabilitiesAccounting treatment based on the following:
IFRIC 1 covers the changes in existing decommissioning, restoration and simlar liabilitiesIFRIC 5 right to interest arising from de commissioning, restoration and environmental and rehabilitation funds
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Recognition
Decommissioning and other related costs are treated as a part of the cost of PPEProvision for liability is created under IAS 37 – Provisions, Contingent liabilities and Contingent Assets
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