IAS 16 Property, Plant & Equipment

Introduction
1. Tangible asset which is held for use
  1. In the production of goods and services
    1. Plant and machinery
  2. as rental to somebody
    1. a building may be rented out to somebody else
  3. for administrative purposes
    1. a factory or building which may be used for administrative purposes
  4. Should be held for more than one accounting period
2. Recognised as an asset
  1. Future economic benefits associated with the asset will flow through the entity
    1. Not always directly attributable
  2. Cost can be measured reliably
Initial measurement
1. Cost
  1. Purchase price
  2. Less rebates, discounts, refundable taxes
  3. Plus directly attributable costs
    1. Instalation, site preparation, professional fees
      1. Administrative or general overhead costs, advertising or staff training costs are not classed as costs
    2. These costs are required to bring the asset to use
  4. Borrowing costs
2. Subsuquent cost
  1. Where expenditure improves the asset the cost should be added
    1. Modifying the asset to increase its useful life
    2. Upgrading to improve output
    3. Estimated removal costs
      1. Dismantling an asset before disposal
Measurement after recognition
1. Cost model
  1. Not a fair and true view
  2. Historical cost
    1. Less accumulated depreciation
      1. Less accumulated impairment
2. Revaluation model
  1. Fair value cost
    1. Market value of the asset
    2. Less subsequent depreciation
      1. Less subsequent impairment
  2. Check fair value of asset regularly
    1. Revalue entire class of assets
Carrying amount of the asset after revaluation
1. Increase (gain)on carrying amount
  1. Debit asset cost account (to make cost equal to valuation
    1. Credit revaluation reserve
      1. Revaluation
        Increase
        Credit revaluation reserve
        Decrease
        Debit revaluation reserve(to equal credit balance)
        Debit P & L a/c with any remaining amount
        Credit asset cost account
  2. If the item is sold
    1. Balance on revaluation reserve
      1. Retained earnings
2. Decrease (loss)on carrying amount
  1. Debit P & L a/c
    1. Credit asset cost account
Depreciation
1. Components can be depreciated separately
2. Reduction in the value of an asset
  1. Cost-residual value
    1. Method
      1. Staight line
      2. Diminishing balance
      3. Useful life
        Depreciation charge
        Recognised in P & L a/c
        expected wear and tear, expiry date and usage
      4. Should be reviewed annually
        If change in pattern of consumption of benefits, then change depreciation method
3. All tangible non current assets must be depreciated whether they are held at cost or fiar value, unless the residual value exceeds the carrying amount(in which case the depreciation amount will be zero)
  1. With the exception of land
Derecognition
1. Sale of an asset or no future economic benefit left in it
  1. Gain or loss in disposal
    1. Difference between proceeds and carrying amount
      1. Shown in P & L a/c

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IAS 16 Property, Plant & Equipment

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	Created by Claire Holmes about 8 years ago