Property, Plant and Equipment IAS16

Recognition Criteria Definition

- Inflow of future economic benefits are probable - Tangible item used for
- The asset's cost can be realiably measured * production or supply of goods or services
Recognition * rental to others
Significant Parts p.344 * administration purposes
- Recognised in separate asset accounts - Expected to be used for more than 1 period
- Not disclosed in financial statements separately

Method of Acquisition Fair Value Initial Costs

- the price that would be
1. Cash and Normal Credit Terms - cash amount * received to sell or 1. Purchase Price p.350
* paid to a liability Add: Import Costs, Non-Refundable Taxes
2. Beyond Normal Credit Terms p.345 - in an ordinary transaction Deduct: Trade Discounts, Rebates
Use PV as cost and the difference is finance costs - between market Exclude: Tax claimed back from tax authourities
Dr Cost participants at the
Dr Finance Cost (difference between PV and FV) measurement date 2. Directly Attributable Costs p.351
Cr Trade Payables Costs to get asset to location and condition that enables it to
be used as management intended, examples: cost of
3. Asset Exchange p.347 preparing site, initial delivery and handling costs, installation
- Use FV of asset given up assembly costs, professional fees, cost of testing the
- Use FV of asset received 'if more clearly evident' Initial Measurement functionality of the asset (less proceeds earned from sale),
- Use carrying amount of asset given up if exchange employee benefits relating directly to its construction and
lacks commercial substance acquisition
- Use carrying amount of asset given up if FV of both No Commercial Substance
assets not reliably measured - will not change the future 3. Certain Future Costs e.g dismantling, removal or restoration
cash flows in any way 3.1 On acquisition p.353
4. Government Grant: Cash p.349 - will not change the value - Capitalise to cost of asset
- Record grant: Dr Bank, Cr Deferred Grant Income of the operation that is to - Provide for liability at PV (if material)
- Record purchase: Dr Asset and Cr Bank use the asset - Depreciate asset and significant parts (liability)
- Reverse grant: Dr Deferred Grant Income, Cr Asset - an expected change in - Add finance cost to provision at end of year
cash flows or value is - Reverse depreciation and provision when paid
5. Government Grant: Non-Monetary insignificant relative to 3.2 Over Time p.354
- Use FV or Nominal Amount the fair value of the assets - Capitalise as a subsequent cost
- Dr Asset and Cr Deferred Grant Income exchanged - Dr Interest and Cr Provision (at PV if material)
Other than to produce inventories during that period.
 Property, Plant and Equipment IAS16

Subsequent Costs Subsequent costs are only Revaluation Model

1. Day-to-day servicing: Expensed p.356 recognised as an asset if Can increase above asset's depreciated cost p.405
Includes labour, consumables, and small parts the recognition criteria - If FV increase: Dr Cost and Cr Revaluation Surplus
2. Replacement Parts p.358 are met - If reverse previous revaluation Dr Cost and
- Derecognise old part Cr Revaluation Income p.400
- Capitalise new part
3. Major Inspection p.359 Subsequent Measurement Impairments
- Cost capitalised - If CA decreased p.399
- Depreciate until next inspection Dr Revaluation Expense (if decreased to FV)
Depreciation - Impairment loss if decreased to recoverable amount
Cost Model - systematic allocation of Dr Impairment Loss
Cost: Capitalise Initial and Subsequent Costs - the depreciable amount
Less: Depreciation & Impairment Losses of an asset - If CA increased p.399
- Depreciation p.366 - over its useful life Cr Revaluation Income (if increased to FV)
* Residual Value: expected proceeds on disposal less - If CA increased to recoverable amount
expected costs of disposal Useful Life Cr Impairment Loss Reversal
* Method of Depreciation - period over which an
- Straight Line: (cost - residual value) ÷ useful life asset is expected to be Revaluation surplus is transferred to Retained
- Diminishing Balance: CA x % of depreciation available for use by an Earnings p.402
- Units of Prod:CA x (Act Output ÷ Total Est Output) entity - Can be done over the life of the asset or
* Useful Life - number of production - On retirement of the asset or
- commence when asset available for use or similar units to be - When asset is disposed of
- stop at earlier of when asset classified as held for obtained from the asset
sale or derecognised by an entity Accounting for Revaluation p.412
* Change in Estimation p.369
- Reallocation Method Impairment Loss 1. Gross Replacement Value p.410
- Cumulative Catch-Up - the excess of - Proportionately restate cost account, accumulated
- Impairment Losses: Evidence of Damage p.372 - the carrying amount depreciation and carrying value
* If CA > RA = impairment loss, depreciation on new amt - over the recoverable
* If CA < RA = impairment loss reversal: but not > HCA amount 2. Net Replacement Value p.411
p.372 - 376 - First eliminate accumulated depreciation
Derecognition Recoverable Amount - Adjust cost to Fair Value
- When an asset is disposed of - higher of an asset's
- When no FEB are expected from its use or disposal - FV - cost to sell and
- its value in use
 Property, Plant and Equipment IAS16

Statement of Financial Position p.386 and p.440 Cost Model and Revaluation Model Notes to the Financial Statements
- One line Item: Property, Plant and Equipment Profit before tax note:
- Depreciation
Revaluation Model - Impairment Losses
Statement of Changes in Equity - Impairment Losses Reversed
- Increase or decrease in revaluation surplus - Profit or Loss on Realisation or Disposal
- Realisations of revaluation surplus - Revaluation Expense
- Any restrictions on distribution of surplus to - Revaluation Income
shareholders
Accounting Policies and Estimates Note:
- Depreciation methods used
Disclosure - Useful lives or depreciation rates
- Measurement models used

Cost Model p.318 Property, Plant and Equipment Note:

- Arises when there is a difference in the carrying
amount and tax base allowed by tax authourity
- Dr Deferred Tax: Income Tax
(tax rate x difference of depreciation & allowable
tax amount) = deferred tax
Cr Tax Expense
Make use of table comparing carrying amount & tax base
Revaluation Model
- If use the asset: calculate deferred tax normally
- If sell the asset but the CA < Cost: measured normally
- If sell the asset but the CA > Cost: measure deferred tax
taking into account the fact that part of the potential
profit on sale would be taxed as a capital gain
- If intend to keep asset and revaluation is above cost: DT
calculated on revaluation surplus
- Deferred tax on the revaluation surplus of a depreciable,
non-deductible asset:
- Deferred tax on the revaluation surplus of a non-
depreciable, non-deductible asset: FV - Cost: CGT (24%)
Deferred Tax
Consequences
- If intend to sell:
* FV - Cost: CGT (24%)
* Cost - HCA: 0%
* HCA - TB: Exempt
- If intend to keep:
* FV - HCA: 30%
* HCA - TB: Exempt
- Gross Carrying Amount
- Net Carrying Amount disclosing separately:
* additions
* disposals
* depreciation
* impairment losses recognised in profit or loss
* impairment losses reversed through the SOCI
* revaluation surplus increase (due to a revaluation)
* revaluation surplus increase (impairment loss reversed)
* revaluation surplus decrease (due to a revaluation)
* revaluation surplus decrease (due to an impairment loss)
* acquisitions through business combinations
* assets transferred to non-current assets held for sale
* other movements
- Costs capitalised of PPE being constructed
- Amount of contractual commitments to acquire PPE
- Existence and amounts of PPE pledged as security
- Effective date of latest revaluation
- Whether or not the valuer was independent
- Carrying amount of PPE had Cost Model been adopted