MFRS 116: PROPERTY, PLANT &

EQUIPMENT
Prepared by:
Mohd Sobre bin Ismail

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 Topic Coverage
• Objective & Scope
• Definition
• Recognition criteria
• Initial measurement
• Subsequent measurement
• De-recognition
• Disclosure

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 Objective & Scope – MFRS116
Objective:
The objective of MFRS 116 is to prescribe the accounting
treatment for property, plant, and equipment. The principal issues
are:
 the timing of recognition of asset;
 the determination of their carrying amounts; and
 the depreciation charges to be recognized.

Scope :
MFRS 116 applied to all Property, Plant & Equipment until and
unless any other standard requires or permits a different
accounting treatment.

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 Definition - Asset
An Asset:
A present economic resource controlled by an
entity as a result of past events.
An economic resources is a right that has the
potential to produce economic benefits.

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 Definition - PPE
Definition:
Property, plant and equipment:
“TANGIBLE ITEMS that:
(a) are held for use in the production or supply
of goods or services, for rental to others, or
for administrative purposes; and
(b) are expected to be used during more than
one period”
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 Recognition Criteria
The cost of an item or Property, Plant &
Equipment shall be recognized as an asset if, and
only if:
a) it is probable that future economic benefits
associated with the item will flow to the entity;
and
b) The cost of the item can be measured reliably.

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 Measurement at Recognition
An item of Property, Plant & Equipment that
qualifies for recognition as an asset shall be
measured at its cost.

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 Element of costs -PPE
Purchase price + (Import duties + Non
refundable taxes) - (Trade Discounts +
Rebates)
Directly attributable costs.
Initial estimate of the cost of dismantling and
removing the item and restoring the site in
which it is located.

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 Cost excluded from PPE
 Costs after asset in place and ready for use
as management intended
 Costs to open a new facility, introduce a
product, move to new location
 General and administrative overhead type
costs
 Example 1 (p.g 438)

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 Element of costs
• Assets purchased (p.g 437)
• Dismantling costs (p.g 437)
• Self constructed PPE (p.g 438)
• Deferred payment (p.g 439)
• Assets exchange (p.g 439)

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Double entry: Initial measurement
DR PPE
CR CASH/BANK/CREDITOR

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 Subsequent costs
• Replacement of parts
– Capitalized if meet the recognition criteria
• Major inspection
– Capitalized if meet the recognition criteria

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 Subsequent Measurement
Choice of two models:
1. Cost model
2. Revaluation model

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Subsequent Measurement: Cost Model
Cost Model (CM):
PPE are carried after acquisition at cost, less
accumulated depreciation and accumulated
impairment losses

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Subsequent Measurement: Cost Model
Depreciation:
• Each major component may have a different
depreciation policy
• Depreciable amount: carrying amount less
residual value
Residual value defined:
• Estimate of net amount entity would receive now
from asset’s disposal, if asset was as old and in
same condition as expected at end of its useful
life
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Subsequent Measurement: Cost Model
Depreciation (continued):
• Depreciation period begins when PP&E is in
place and ready to use, continues even if not
used or is retired from active use
• Depreciation period ends when PP&E is
derecognized or classified as held for sale
(MFRS 5)
• Depreciate over useful life to entity

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Subsequent Measurement: Cost Model

Depreciation (continued):
• Useful life – consider capacity, wear and tear,
technology changes, changes in product
demand, contractual or legal limits
• Choose method based on pattern that asset’s
economic benefits are expected to be received:
SL, DB, or activity-based
• If change in pattern, change method
prospectively (change in estimate)
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 Subsequent Measurement: Revaluation
Model
• Apply only to assets whose FV can be reliably
measured
• Revalue often enough that carrying amount is
close to FV
• Depreciate revalued amount using same
principles as for CM

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 Subsequent Measurement: Revaluation
Model (revaluation principle)
- Revalue regularly.
- Revalue all assets of the same class.
- Fair value of land & building is determined from market-based evidence
- Fair value of item of plant & equipment is determined by market value.
- Surplus on revaluation; credited to:
– Profit or loss to the extent they reverse previous deficit on revaluation of that
asset.
– Otherwise, equity (Assets revaluation reserve) & Other comprehensive income
(OCI).
- Deficit on revaluation; debited to:
– Equity/ OCI to the extent of any revaluation surplus in equity related to that asset.
– Otherwise, profit or loss.
• Example 8 (p.g 447)

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 Methods to record revaluation
1. The gross carrying amount is restated in a
manner consistent with the revaluation
carrying amount.
– The accumulated depreciation is the difference
between the gross and net carrying amount.
– This method adjust both the gross amount and
the accumulated depreciation so that the
adjusted net carrying amount is equal to net
revalued amount.

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 Methods to record revaluation
2. Eliminates the accumulated depreciation at
the valuation date against the gross carrying
amount and the net amount is restated to
the revalued amount of the assets.

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 Recognition of surplus on revaluation
• The surplus can only be treated as income once it is realised.
• The surplus need to be transferred to retained earnings
instead of income statement
• TWO situation in which surplus on revaluation is considered
as realised:
– Upon disposal of revalued assets – transfer the balance in ARR to
retained profit
– Part of the reserve may be realized and transfer to retained profit
during the period when the asset is used by the entity. Amount
reserve realised is the differences between depreciation based on
the revalued carrying amount and the depreciation based on the
asset’s original cost.

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 Information on PPE
Information regarding the purchase of the PPE would
be useful to the shareholder as it will help
shareholders and creditor
1. The PPE will help the company to generate cash
inflow and is expected to increase the company’s
profit.
2. The shareholder and creditors need to know how
well the company’s management have discharge
their responsibilities is managing the company’s
resources.
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 Information on PPE
3. The creditiors need to know the information
in order to assess the company’s ability to pay
back its liabilities

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 De-recognition
- De-recognition:
– On disposal, or
– When no future benefits expected from use or disposal.
- Difference between carrying amount and net disposal
proceeds recognised as gain/loss in profit or loss.
- Gains not classified as revenue.
- Apply MFRS118 Revenue in determining date of disposal.
- Consideration receivable measured at fair value.
- Example 15 (p.g 455)

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 Presentation & Disclosure
Measurement basis
- Depreciation methods
- Useful lives or depreciation rates
- Gross carrying amount and accumulated
depreciation at beginning and end of period
- Reconciliation at beginning and end of period
showing:
- Comparative information required
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 Presentation & Disclosure
- Disclosure requirements for revalued assets:
– Date of revaluation.
– Whether independent valuer was used.
– Methods and significant assumptions applied in estimating
fair values.
– Extent to which fair values were determined directly or
estimated.
– Carrying amount of each class of revalued PPE as under the
cost model.
– Revaluation surplus, including movement and any
restrictions of distribution of balance to shareholders.
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