IAS 16: Property Plant & Equipment

Recognize Major components separately

Major component not initially accounted for

Body Component Total

Cost 20 000 000 20 000 000
Acc Depreciation (5 000 000) (5 000 000)
Subsequent Recognition 5 000 000
Subsequent Acc Depreciation (1 250 000)
Derecognition (3 750 000) (3 750 000)
Capitalization - 5 000 000 5 000 000
Carrying Amount 11 250 000 5 000 000 16 250 000

Replacement of significant components

CA = (Main Asset-Component) – (Main Asset - Component)÷Useful life

Components identified on Initial Recognition

Replacement value = Deemed Cost (5 000 000)

Accumulated Depr: Deemed cost/original useful life x no. of years (5 000 000 x 5/20)

Cost 20 000 000

Acc Depreciation of total Asset (5 000 000)
Derecognition of CA of old (unrecognized) component (3750 000)
Capitalization of new component 5 000 000
16 250 000

Inspection Costs
Capitalize expected cost over expected useful life

1. Change in amount
- Capitalize new amount
2. Change in Timing
 - Do normal depreciation on inspection derecognize remaining CA. New
depreciation for remainder of year

200 000 -> 300 000 & 2 years -> 1.5 years
Depr CY: 200 000/2 x 6/12 + 300 000/1.5 x 6/12

- 1st 6 months @ original

- 2nd 6 months @ new useful life

Derecognize remaining CA = Cost less (1st year Depr + 2nd year Depr)

50 000 = 200 000 – (100 000 – 50 000)

Subsequent Measurement
Same treatment as a component

Deemed Cost – (deemed cost ÷ original useful life x no. of years)