IAS 16 Property, Plant and Equipment

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Standard IAS 16 prescribes the accounting treatment for property, plant and equipment.
Related Standard

IFRS 5 Non-current Assets Held for Sale
IFRS 16 leases
IAS 40 Investment Property
IAS 36 Impairment of Assets
IAS 23 Borrowing Costs.

Definition:
Property, plant and equipment are #tangible items that are #held_for_use in the production or supply of goods or services, for rental to others, or for administrative purposes; and are expected to be used during more than one period.
Recognition criteria:
• If it is probable that future economic benefits associated with the item will flow to the entity; and
• the cost of the item can be measured reliably.
Initial Measurement at Cost
The cost comprises:
1. Purchase price including import duties, non-refundable purchase taxes, after deducting trade discounts and rebates
2. Directly attributable cost eg- costs of site preparation, professional fees, initial delivery and handling, installation and assembly, etc.,
3. Future unavoidable costs eg- dismantling and removing the item
4. Borrowing cost as per IAS 23
The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date.
Expenses can’t be Capitalized:
  • General overhead
  • Administrative overhead
  • Wastage/Idle time
  • Ratification cost
  • Employee Training Cost
  • Initial operating loss
  • Relocation cost
  • Reconstruction cost
  • Initial Startup cost
Subsequent Expenditure (Capitalized if)
🔋Useful life/Productivity/Revenue increase or, Cost Savings or wastage minimize
🔋Major (Material) Parts replacement cost
Overhaul Cost/ Major inspection
Subsequent Measurement at Cost model or Revaluation model
1. Cost model: Cost less accumulated depreciation and impairment losses as per IAS 36.
2. Revaluation model: Revalued amount is its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent impairment losses.
🔍 To select the revaluation mode, the asset must have active market and fair value or market price
🔍 If an item of property, plant and equipment is revalued, the entire class of assets shall be revalued.
🔍 The carrying amount does not differ materially from its fair value at the end of the reporting period
Revaluation gain or loss must be calculated compare with carrying value of that asset
💡Revaluation reserve should be reported through Other comprehensive income (OCI)
💡Revaluation gain will be reported to OCI unless any previous loss in P/l
💡Revaluation Loss will be charged to P/l
💡Excess depreciation due to revaluation could be transferred to p/l.
Derecognition
IAS 16 prescribes that the carrying amount of an item of property, plant and equipment shall be derecognized on disposal; or when no future economic benefits are expected from its use or disposal.
The gain or loss from the derecognition is calculated as the net disposal proceeds (usually income from sale of item) less the carrying amount of the item and shall be included in profit or loss when the item is derecognized.
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