A Technical Training on IAS- 16 Property, Plant and equipment

1. IAS 16 PROPERTY, PLANT AND
EQUIPMENT
Spectrum Auditing
Jagan Singireddy

2. Objective
This presentation aims at giving a
general explanation of IAS 16 standard
and see its applicability

3. OUTLINE
I - OBJECTIVE AND SCOPE OF IAS 16
II - RECOGNITION AND MEASUREMENT
III - MEASUREMENT AFTER RECOGNITION
IV - DERECOGNITION AND DISCLOSURE

4. INTRODUCTION
International Accounting Standard 16 Property, Plant and
Equipment or also known as IAS 16 is an international financial
reporting standard adopted by the International Accounting
Standards Board (IASB). It is defined as 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. This accounting standard
actually concerns accounting for property, plant and equipment
known more generally as fixed assets, including recognition,
determination of their carrying amounts, and
the depreciation charges along with impairment lossesx

5. SCOPE
 IAS 16 applies to all PPE except
 Assets held for sale (IFRS 5)
 Biological assets (IAS 41)
 Exploration and evaluation assets (IFRS 6)
 Investment property (IAS 40)
 Mineral rights and mineral reserves such as oil,
natural gas and similar non-regenerative
resources

6. RECOGNITION
An item of property, plant and equipment is
only recognized if :
 it is probable that the future economic
benefits associated with the asset will flow
to the entity, and
 the cost of the asset can be measured
reliably.

7. MEASUREMENT
Items of property, plant and equipment should be measured at
cost, which includes its original purchase price, any costs
necessary to bring the asset to the location and condition for its
intended use (e.g. site preparation, delivery and handling,
installation, related professional fees for architects and engineers),
and the estimated cost of dismantling and removing the asset and
restoring.
Example : Water heater installation machine at site.
1. Cost of machine,
2. Import charges
3. Custom duty,
4. Installation cost at site place, like labour charges,
commissioning testing cost)

8. MEASUREMENT AT RECOGNITION
The elements of the initial cost of an item of
property, plant and equipment includes all of
the costs of acquisition, construction,
installation and commissioning.
The initial cost excludes promotional,
advertising, administrative or general overhead
expenses including re-location or operating
costs.

9. MEASUREMENT AT RECOGNITION CONTINUED
The cost of an item of property, plant and
equipment is the cash equivalent price or, in
the case of a item with no cost, its fair value at
the date of acquisition.

10. MEASUREMENT AFTER RECOGNITION
AS 16 permits two accounting models for
measurement of the asset in periods subsequent
to its recognition, namely the cost model and
the revaluation model.

11. MEASUREMENT AT RECOGNITION continued
• Under the cost model, the carrying amount of the
asset is measured at cost less
accumulated depreciation and
eventual impairment (similar to the
inventory's Lower of cost or market prudent
principle). Under the cost model, the impairment is
always recognized (debited) as expense.

12. MEASUREMENT AT RECOGNITION continued
Under the revaluation model, the asset is carried at its
revalued amount, being its fair value at the date
of revaluation less subsequent depreciation and
impairment, provided that fair value can be determined
reliably.

13. DERECOGNITION
Items of property, plant and equipment are derecognized on
disposal or when no future economic benefit is expected from its
use. An entity should recognize any gain or loss on disposal in its
income statement. The gain or loss on disposal is the difference
between the proceeds received in exchange for the asset disposed
and the carrying amount at the time of disposal.

14. IMPAIRMENT
The difference between the determined
recoverable amount of an asset and its carrying
value will be applied as an impairment loss or
reversal.
Impairment losses or reversals are applied to
individual assets as an 'Impairment
Adjustment' in the appropriate period.

15. DISCLOSURE
• IAS 16 requires an entity to disclose in its financial
statements for each class of property, plant and
equipment:
 the basis for measuring carrying amount
 the depreciation method(s) used
 the useful lives or depreciation rates
 the gross carrying amount and accumulated
depreciation and impairment losses
– net foreign exchange differences on translation
– other movements

16. DISCLOSURE CONTINUED
a reconciliation of the carrying amount at the
beginning and the end of the period, showing:
Additions
Disposals
acquisitions through business combinations
revaluation increases or decreases
impairment losses
reversals of impairment losses
depreciation