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IAS 16-Property, Plant and Equipment

Objective

The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognised in relation to them.

Scope

This Standard shall be applied in accounting for property, plant and equipment except when another Standard requires or permits a different accounting treatment.

Definitions

A bearer plant is a living plant that:

  • is used in the production or supply of agricultural produce;
  • is expected to bear produce for more than one period; and
  • has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.

Carrying amount is the amount at which an asset is recognised after deducting any accumulated depreciation and accumulated impairment losses.

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRSs, eg IFRS 2 Share-based Payment.

Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

Entity-specific value is the present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See IFRS 13 Fair Value Measurement.)

An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

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.

Recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use.

The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Useful life is:

  • the period over which an asset is expected to be available for use by an entity; or
  • the number of production or similar units expected to be obtained from the asset by an entity.

Recognition

The cost of an item of property, plant and equipment shall be recognised as an asset if, and only 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.

Measurement

An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.

An entity shall choose either the cost model in paragraph 30 or the revaluation model in paragraph 31 as its accounting policy and shall apply that policy to an entire class of property, plant and equipment.

Disclosure

The financial statements shall disclose, for each class of property, plant and equipment:

  1. the measurement bases used for determining the gross carrying amount;
  2. the depreciation methods used;
  3. the useful lives or the depreciation rates used;
  4. the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; and
  5. a reconciliation of the carrying amount at the beginning and end of the period showing:
  • additions;
  • assets classified as held for sale or included in a disposal group classified as held for sale in accordance with IFRS 5 and other disposals;
  • acquisitions through business combinations;
  • 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 IAS 36;
  • impairment losses recognised in profit or loss in accordance with IAS 36;
  • impairment losses reversed in profit or loss in accordance with IAS 36;
  • depreciation;
  • 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
  • other changes.