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Property plant and equipment ias 16
 

Property plant and equipment ias 16

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    Property plant and equipment ias 16 Property plant and equipment ias 16 Presentation Transcript

    • IAS 16 Property Plant & Equipment - N R GOVINDARAJAN Chartered Accountant FCA, AICWA,CISA, DISA (ICAI)
    • Overview
      • Meaning
      • Scope and objectives
      • Exclusions
      • Definitions
      • Initial recognition
      • Measurement of Cost
      • Subsequent Recognition
      • Subsequent costs
      • Spare parts
      • Standby equipments
    • Overview
      • Impairment
      • De recognition
      • Revaluation
      • Depreciation
      • Disclosures
      • Decommissioning, restoration and similar liabilities
      • Summary
    • Meaning
      • Property plant and equipment :
      • Tangible assets
      • Held for :
      • Use in the production or supply of goods or services
      • Rental to others
      • Administrative purposes
      • Assets held by a lessee under finance lease is also included in this category
    • Scope and Objectives
      • Timing of recognition
      • Determination of carrying amount on initial recognition
      • Subsequent measurement
      • Depreciation
      • Derecognition
      • Disclosures
    • Exclusions
      • PPT held for sale – IFRS 5
      • Biological assets related to agricultural activity – IAS 41
      • Exploration and evaluation assets – IFRS 6
      • Mineral rights and mineral reserves like oil and natural gas etc
    • DEFINITIONS
    • Initial recognition
      • Recognition criteria:
      • Expenses on acquisition or construction of an asset is recognised if the following conditions are met:
      • It is probable that future economic benefits associated with the asset will flow
      • > Transfer of risks and rewards passed to the enterprise
      • Cost of the assets can be reliably measured
      • > Supporting Vouchers
    • Measurement of Cost
      • Initial Measurement
      • @ cost
      • Cost consist of:
      • Purchase price net off discounts and rebates but including import duties and non refundable taxes
      • Direct costs incurred in bringing the asset to the working condition (Same as Indian GAAP)
      • Initial estimated costs of decommissioning, restoration and other obligations (unlike Indian GAAP)
      • Case study 1
    • Subsequent Recognition
      • It is done either under cost model or revaluation model
      • Cost Model
      • Asset is carried at cost less accumulated depreciation less accumulated impairment losses
      • Revaluation Model
      • Asset is carried at revalued amount less accumulated depreciation and accumulated impairment losses
      • Revaluation is applied to all assets belonging to same class and revaluation is carried out for the class as whole at regular intervals – Buildings, Plant etc
    • Subsequent costs
      • They are usually expensed off
      • Added to the cost of the asset if:
      • Modification – Extends useful life or increases its capacity
      • Upgrading to achieve substantial improvement in quality
      • New process resulting in reduced operating costs
    • Spare Parts and Standby Equipment
    • Impairment REFER IAS 36
    • De recognition
      • An asset is derecognised only on two conditions:
      • 1. On disposal
      • 2. No further economic benefits are expected to be derived from the asset
      • Gains or losses are recognised in the profit and loss account
      • Not an operating gain or loss and hence not recognised as revenue
      • Case study 3
    • Revaluation
      • Entire Class of asset should be revalued
      • Rolling basis is permitted
      • Basis of revaluation is “fair value”
      • What constitutes fair value?
      • Mostly market value
      • Increase in the carrying amount on account of revaluation is accounted as revaluation surplus in comprehensive income statement
    • Revaluation
      • To the extent of the revaluation loss charged off earlier in respect of the same asset could be credited to Income Statement
      • Revaluation loss is charged to Income Statement , however, if there exists any revaluation surplus in respect of the same asset it can be set off to the possible extent
    • Accumulated Depreciation and Revaluation
      • Case Study 4
      • Case Study 5
    • Depreciation
      • The definition of Depreciable amount, depreciation and residual value are same as in IGAAP
      • Review of residual value at each FY end is to be done
      • Depreciation is taken as a charge even if the fairvalue is more than depreciable amount
      • No need for depreciation if the residual amount exceeds the carrying amount
      • Depreciation is chargeable if the asset is available for use and ends if the asset is classified as held for sale as per IFRS 5
      • It does not end due to idleness or even if it is retired from active use
    • Component model
      • Each part of PPE is to be depreciated separately
      • Eg: Air frame and engine of aircraft
      • For each part cost is allocated, useful life, residual value is determined and depreciation is calculated
    • Disclosures
      • Norms for Disclosure are given in Paras 73 to 79
      • Some of the items include:
      • Measurement bases
      • Methods of depreciation
      • Useful life or rate of depreciation
      • Reconciliation of carrying amount
      • Revaluation disclosures
      • Impairment
      • Details of idle and retired properties
    • Decommissioning, restoration and similar liabilities
      • Accounting treatment based on the following:
      • IFRIC 1 covers the changes in existing decommissioning, restoration and simlar liabilities
      • IFRIC 5 right to interest arising from de commissioning, restoration and environmental and rehabilitation funds
    • Recognition
      • Decommissioning and other related costs are treated as a part of the cost of PPE
      • Provision for liability is created under IAS 37 – Provisions, Contingent liabilities and Contingent Asssets
      • Case study 6
    • Changes in decommissioning, restoration and similar liabilities
      • Nature of changes
      • Accounting treatment
    • SUMMARY – IAS 16 VS IGAAP AS 10 CHANGE IN POLICY – RETROSPECTIVE EFFECT CHANGE IN ESTIMATE – PROSPECTIVE EFFECT CHANGE IN THE METHOD EXPENSED OFF TREATED AS A COMPONENT AND CAPITALISED OVERHAULING NO REGULAR UPDATION REGULAR UPDATION REVALUATION BASED ON SCH IV BASED ON USEFUL LIFE DEPRECIATION NOT MANDATED MANDATED COMPONENT APPROACH INDIAN GAAP IFRS Nature of item
    • THANK YOU [email_address]