IAS 16 PROPERTY, PLANT

AND EQUIPMENT

PRESENTED BY UM E LAILA
 • Scope of standard
• Definitions regarding PPE
1

• Recognition of PPE
• Subsequent costs
2 • Cost model & Revaluation model

• Depreciation procedure
• Impairment
3 • summary
Scope of the standard

Applies in the accounting for elements of tangible fixed assets

Except
 Property, plant & equipment that is for sale
 Biological assets related to agricultural activity
 Mineral rights and mineral reserves
(Different accounting treatment)
Definition:

 Property plant and Equipment:

 Are tangible assets
 Are held for use in the production or supply of goods/services
 Expected to be utilized in more than 1 periods
 Cost:
 Cash or cash equivalent paid to acquire an asset at the time of its acquisition and construction
 Fair Value:
 The present market value of an asset
 Carrying amount:
 The amount at which an asset is recognized after deducting any accumulated depreciation or losses
 Carrying amount= Acquisition cost – Accumulated depreciation
Recognition: PPE

An asset that qualifies as PPE shall be measured at its cost:

Elements of cost
 Purchase price and duties paid
 Directly attributable costs
 Cost of dismantling , removing the item and restoring the site.
 Material, labor and other inputs for self constructed assets
 Subsequent costs
Additional costs are incurred after the asset becomes operational is called
subsequent costs.
 Example
 Expenses day-to-day servicing cost
 Capitalize replacement or renewal components and inspection cost
Subsequent Measurement
 Cost Model:

 Carrying Amount is:

 At cost less any accumulated depreciation less any accumulated impairment losses

Revaluation Model:
 Carrying Amount is:
 Fair Value less subsequent accumulated depreciation less subsequent accumulated
impairment losses
 Depreciation:
 Depreciation:
 Depreciation is the systematic allocation of the depreciable amount of an asset over its useful
life.
 Residual value:
 The remaining value of an asset after it has been fully depreciated
 Depreciable amount:
 The cost of an asset less its residual value
Depreciation Method

 Straight line method

 Sum of years digit method
 Double declining balance method
 Units of activity method
Sum-of-year’s- Digit method
 Applicable percentage  = Number of years of estimated life
remaining at the beginning of the year / SYD

 SYD = n(n + 1)/2 where n = estimated useful life

Q:ABC Company purchases a machine for $100,000. It has an estimated salvage value of $10,000 and a useful life
of five years. The sum of the years' digits depreciation calculation:
DERECOGNITON

 Derecognition happens when an asset is sold, exchanged or abandoned and

therefore removed from the balance sheet.
 Balance sheet : Asset is removed
 Income statement: A loss/gain equal to carrying value less sale proceeds is
reported on income statement.
That was all in the article

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