IAS 16 (Property, Plant and

Equipment)
6 main questions are mentioned
below
1. What is property, plant and equipment ?
2. When to recognize ? Recognition ?
3. Value of assets?
4. Subsequent expenses?
5. Measurement after recognition ?
6. DE recognition of assets ?
1- property, plant and equipment ?
2- When to recognize ? Recognition ?

1- Property plant and equipment are should be tangible items.

• - There are 4 main purposes and if asset fulfil any one requirement then it is
• Production ? (Assets held to be used in production)
• It is held to be used in supply of goods or services.
• It should be held for rental to others.
• For administrative purpose.(like computers, furniture used by admin)

• - It is expected to be used more than one accounting period.

2- Then recognize the asset are measurement of assets
• 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.
3- Value of assets?

• All assets initially recognize at cost. Valuation of asset is the main

purpose.
• Incidental revenue and expenses are not the part of cost.
• These incidental revenue/expenses are not for the main course of
business. Like owner give his empty plot for parking for the time being
which is not his main business so this revenue is incidental revenue.
• Exchange of non monitory assets example is barter system.
4- Subsequent expenses ?
4- Subsequent expenses are routine or day to day expenses to meet
daily basis requirement of business.
Normal expense are not part or included in cost of assets.
CAPITALIZATION included in cost of business. Example is we purchase a
machine from abroad for our production or business and bring this
machine to pak Islamabad so all cost included in capitalization but
afterward we decided to transfer this machine to Karachi this is call
expense and these will not be part of cost and capitalization,
Capitalization of asset is the part of balance sheet
5- Measurement after recognition ?

• There are 2 main models used in measurement of assets

1. Cost model
2. De valuation of assets model (There are different models used in different class of assets )
IN COST MODEL
After recognition as an asset, an item of property, plant and equipment shall be carried at its
cost less any accumulated depreciation and any accumulated impairment losses.
IN REVALUATION MODEL
After recognition as an asset, an item of property, plant and equipment whose fair value can
be measured reliably shall be carried at a revalued amount, being its fair value at the date of
the revaluation less any subsequent accumulated depreciation and subsequent accumulated
impairment losses. Revaluations shall be made with sufficient regularity to ensure that the
carrying amount does not differ materially from that which would be determined using fair
value at the end of the reporting period.
Depreciation ?
Residual value ?
• Depreciation is systematic allocation of depreciable amount which covers useful life.
• Depreciable amount is the cost of an asset, or other amount substituted for cost, less its
residual value.
Depreciable amount is (cost less residual value of asset )
Like cost = 100
Less Residual value = 10
90 (Amount to be depreciated )
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.
Residual value is always on current year estimation like what is value of today after 10 year
depreciation. Based on current estimation.