1 IAS 16

Property Plant & Equipment

Learning Outcomes
 Identification of Cost
 Depreciation
 Double Entry For Depreciation
 Changes in Useful Life
 Disposal of an Asset
 Revaluation
 PPE Table

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“ Cost of Asset will include all
cost incurred in getting an
asset to the present location
and current working
condition

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 The following should be
considerd for Cost At Initial
Measurement

▸ Purchase Price
▸ Professional Fees ( Legal Charges )
▸ Freight Charges
▸ Taxes and Custom Duties
▸ VAT if not Registered
▸ Transportation Cost

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 The following should be
considerd for Cost

▸ Decommision Cost
▸ Site Preparation
▸ Installation cost
▸ Trial run & Testing Charges
▸ If any inflows are generated during
acquistion it Should be Reduced
from the Cost

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VALUE ADDED TAXES
▸ IF REGISTERED
 The amount paid could be recovered
 Therefore not a part of Cost

▸ IF NOT REGISTERED
 The amount paid cannot be recovered
 Therefore a part of Cost

▸ Calculation
 (Amount / 100 or 100 + VAT) x VAT

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Subsequent
Measurement
If any Expenditure is incurred which results
in an increase in Future benefits ( increase
in useful life , productivity , reduction in
cost )
Such cost must be Capitalized

Capitalized = Add to the cost of the asset

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Depreciation methods
Straight Line Reducing balance method

▸ Cost x % ▸ ( cost – acc.dep ) x %

▸ ( Cost – Residual value ) /useful
life

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Double Entry :
• Depreciation Debit
Provision for Depreciation Credit

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Changes in Useful Life:

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 The following Formula
should be applied
Revision of useful life
Cost xxx
+ Capital improvements xxx
(-) provision for depreciation (xxx)
(depreciation per annum x no of years used)
( - ) new scrap value ( xxx)
---------------------------------------------------
New depreciable value xxx
---------
/ new or remaining useful life x
--------
Depreciation xxxx
---------
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Disposal:
• When an Asset is sold or exchanged the
following account must prepared

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Disposal A/C
Provision for Dep. (2) xx
Cost (1) xx Cash / Asset (3) xx

I/S ( Profit ) (4) xx I/S ( Loss ) (4) XX

xxx xxx

Provision = ( Dep. x No. of years used)

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Revaluation :
• Introduction
Calculate Loss or Profit
Treatment of Profit or Loss

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Double Entries for
Revaluation
▸ Cancel the existing provision
▸ Provision for Dep. – Debit
▸ Asset – Credit

▸ Balance the asset account and transfer it to

revaluation account

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Double Entries for
Revaluation profit
▸ Asset Debit
▸ Expenses Credit ( If applicable )
▸ Revaluation Credit

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Double Entries for
Revaluation Loss
▸ Revaluation Debit
▸ Expenses Debit ( If applicable )
▸ Asset Credit

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Accounting for
Revaluation Loss
Step 1 Step 2 Step 3 Step 4

Calculate revalution Check for any Set off / Cover any Transfer Balance Loss
loss previous year profit / losses Through OCI to Expenses
Revaluation Surplus using last year profit
.

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Accounting for
Revaluation Profit
Step 1 Step 2 Step 3 Step 4

Transfer Balance
Calculate revalution Check for any Recover any losses Profit to O.C.I
profit previous year losses Through Other ( Revaluation
expense Reserve )
.

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Excess Depreciation

This happens when there is a revalution profit How to account ?

How to Calculate ? If the company opts for annual transfer of
excess depreciation
New deprecation – old depreciation
Then
Or
Revaluation Debit
Revalaution profit / remaining useful life
Reatianed earnings Credit
.
( Happens inside SOCE )

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THANKS!
Any questions?

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