IAS 16 Property, Plant and Equipment

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

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

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.

• 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.

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:

Useful life/Productivity/Revenue increase or, Cost Savings or wastage minimize

Major (Material) Parts replacement cost

Overhaul Cost/ Major inspection

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.

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.