IAS 16- Property, plant and equipment

Objective of IAS- 16

The main purpose of IAS 16 is to 

• Accounting treatment of Property,Plant&Equipment
• Recognition of Assets
• Determination of Carrying Amount
• Depreciation charges&impairment losses

Scope

The standards dosn,t apply to 

1. Biological assets related to agricultural activity
2. Minal rights and minerals reserve & non regenerative resources

Recognition of an asset 

 

At the time that PP&E costs are incurred, the entity evaluates these costs against this recognition 

principle. Costs that are expected to result in benefits lasting more than one period are 

capitalized, while day-to-day repair and maintenance costs are expensed as incurred. 

Property, plant, and equipment that qualifies for recognition as an asset is measured at its cost 

, which comprises the purchase amount of the asset less any discount, plus any and all 

taxes, and any costs directly attributable to bringing the asset to the location 

and condition necessary for it to be capable of operating in the manner intended by management.

Initial measurement

 

 

An item of property, plant and equipment should initially be recorded at cost.Cost includes all direct costs incurred on installation,construction or initial testing of the asset,plus all directly attributable costs explained above.

 

MEASUREMENT SUBSEQUENT TO INITIAL MEASUREMENT

1. Cost model

The asset is carried at cost less accumulated depreciation and impairment.

1. Revaluation model

The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably.

 

 

Depreciation

 

 

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

useful life. Depreciable amount is the cost of an asset, or other amount substituted for

cost, less its residual value.  Each part of an item of property, plant and equipment

with a cost that is significant in relation to the total cost of the item shall be

depreciated separately.  The depreciation charge for each period shall be recognised in

profit or loss unless it is included in the carrying amount of another asset. 

The depreciation method used shall reflect the pattern in which the asset’s future

economic benefits are expected to be consumed by the entity. 

 

METHODS OF DEPRECIATION

The most common methods to allocate depreciation are:

• Straight Line Method

D=COST-RESIDUAL VALUE/USEFUL LIFE

• Diminishing Balance Method

Depreciation is calculated on the declining balance in this method