International Accounting Standard 16, updated till Jan 2018

1. Property Plant & Equipment
1/9/2018 IAS-16 1
REVIEWED BY:
Moeez Hassan
M.Com, LLB., ITP, Associate Member COSO USA.
FinGenie Consulting (Private) Limited
Chartered Accountants, Taxation, Business Restructuring & ERP Experts,
PREPARED BY:
Syed Saqlain Abbas.

2. 
 Initial measurement of PPE
 Depreciation & carrying amount
 Revaluation of PPE
 Depreciation of PPE
 Disclosure requirement of IAS-16
IAS-16
1/9/2018 IAS-16 2

3. 
Property, plant and equipment are tangible items that :
a) are held for use in the production or supply of goods and
services, for rental to others or for administrative
purposes ; and
b) are expected to be used during more than one period.
What is property plant and
equipment?
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4. 
The cost of an item of property, plant and equipment
must 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.
Initial recognition
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5. 
What is commercial substance?
Commercial substance depends on the extent to which future cash
flows are expected to change as a result of the transaction.
Note
If there is minimal impact on future cash flows then the exchange lacks
commercial substance.
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6. 
Exchange transactions
YesNo
FV of asset acquired is
more clearly evident
Transaction has commercial
substance
Asset recorded at FV
of asset acquired
Asset recorded at FV
of asset given + cash
Asset recorded at CV
of asset given + cash1/9/2018 IAS-16 6

7. 
The cost of an item of property, plant and machinery consists of:
 its purchase price after any trade discounts and rebates have
been deducted, plus any import duties or non-refundable sales
tax; plus
 the directly attributable costs of bringing the asset to the
location and condition necessary for it to be capable of
operating in the manner intended by management.
 When the entity has an obligation to dismantle and remove the
asset at the end of its life.
Elements of cost
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8. 
Directly attributable costs may include:
 employee costs arising directly from the installation or construction of the
asset;
 the cost of site preparation;
 initial delivery and handling costs (‘carriage inwards’);
 installation and assembly costs;
 testing costs to assess whether the asset is functioning properly (net of sale
proceeds of items produced during the testing phase).
 professional fees.
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9. 
Following cost are not included
in the cost of PPE
 Costs incurred while an item capable of operating in the manner
intended by management has yet to be brought into use or is operated at
less than full capacity;
 initial operating losses, such as those incurred while demand for the
item’s output builds up; and
 costs of relocating or reorganizing part or all of an entity’s operations.
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10. 
Cost of self-constructed assets
The cost of a self-constructed asset is determined using the same principles as
for an acquired asset.
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11. 
The cost of an item of property, plant and machinery consists of:
 its purchase price after any trade discounts and rebates have
been deducted, plus any import duties or non-refundable sales
tax; plus
 the directly attributable costs of bringing the asset to the
location and condition necessary for it to be capable of
operating in the manner intended by management.
 When the entity has an obligation to dismantle and remove the
asset at the end of its life.
Elements of cost
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12. 
 costs of opening a new facility;
 costs of introducing a new product or service
(including costs of advertising and promotional
activities);
 costs of conducting business in a new location or
with a new class of customer (including
 costs of staff training); and
 administration and other general overhead costs.
Not part of cost
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13. Subsequent expenditure
Day to day
expenses
Major
inspection
Cost
Major
Part Exchange
Expense out
In
Profit & Loss A/C
e. g Repair &
Maintenance
Recognized in books
after
Derecognizing
remaing CV
Recognized in books
after
Derecognizing
remaing CV1/9/2018 IAS-16 13

14. 
What is depreciation?
Depreciation is the systematic allocation of the depreciable
amount of an asset over its useful life.
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15. 
Depreciable amount is the cost of an asset, or other
amount substituted for cost, less its residual value.
Depreciable Amount
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16. 
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
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17. 
Useful life is:
a) the period over which an asset is expected to be
available for use by an entity; or
b) the number of production or similar units expected
to be obtained from the asset by an entity.
Useful Life
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18. 
Carrying amount is the amount at which an asset is
recognized after deducting
a) Accumulated depreciation; and
b) Accumulated impairment losses
Carrying Amount
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19. 
 Each part of an asset that has a cost that is significant
in relation to the total cost of the item must be
depreciated separately.
 This means that the cost of an asset might be split
into several different assets and each depreciated
separately.
Parts of an asset
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20. 
Debit Credit
Depreciation expense X
Accumulated depreciation X
Depreciation double entry
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21. 
Rs.
Non-current asset at cost X
Less accumulated depreciation (X)
Carrying amount (net book value) X
Carrying amount of a
non-current asset
This figure appears on the
face of the statement of
financial position
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22. 
Depreciation of an asset begins when that
asset is available for use.
Commencement of depreciation
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23. 
Asset is classified as held for sale
or
Asset is derecognized from books
Cessation of Depreciation
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24. 
There are 38 methods of depreciation.
But
 Straight-line method
 Reducing balance method
 Number of units produced
Depreciation Methods
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25. 
Depreciation of full year.
Depreciation = Cost of Asset - Residual Value
Expected useful life (years)
Straight-line method
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26. 
Depreciation of mid year.
Depreciation = 250,000 × 4 = Rs. 16,667
5 years 12
Straight-line method
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27. 
Depreciation = Carrying Amount * Fixed Percentage
Reducing balance depreciation
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28. 
1/2
X = 1 - Residual value
Cost
Fixed Percentage
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29. 
Cost – residual value × Number of units
Depreciation = Total expected production produced in period
No. of units produced
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30. 
The amount by which the carrying amount of an asset
exceeds its recoverable amount.
Impairment
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31. 
Higher of :
 Fair value less costs to sell
 Value in use
What is recoverable amount?
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32. Measurement after recognition
Cost
Modal
Revaluation
Modal
Cost
Less
Accumulate Depreciation
less
accumulated impairment losses
PPE
is carried at a
Revalued Amount
The choice must be applied consistently.
A business cannot carry one item of PPE at
cost and revalue a similar item.
However, a business can use different
models for different classes of property,
plant & equipment.
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33. 
Cost of asset
less
Accumulated depreciation
Cost Model
1/9/2018 IAS-16 33

34. 
Revalued amount
less
Accumulated depreciation
Note : Since the most recent revaluation
Revaluation Model
1/9/2018 IAS-16 34

35. 
Property Plant & Equipment Dr.
Revaluation Surplus Cr.
Revaluation Surplus Dr.
Retained Earning Cr.
Entries of Revaluation
1/9/2018 IAS-16 35

36. 
 Consistency in revaluation (Regularity)
 Applied on whole class of asset
Policies of Revaluation
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37. 
PPE are eventually disposed of:
 By Sale, or
 Disposal as Scrap
(If they have no sale value)
Gain or loss on disposal of a
non-current asset
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38. 
Sale proceeds on disposal X
Less: Disposal costs (X)
Net disposal value X
Asset at cost X
Less: Accumulated depreciation (X)
Carrying amount at date of disposal (X)
Gain /loss on disposal X
Calculation
Gain or Loss on disposal
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39.  Debit Credit
Disposal account X
NCA (cost of the asset) X
Accumulated depreciation account X
Disposal account X
Disposal account (disposal expenses) X
Bank or Payables account X
Bank or Receivables account X
Disposal account (sale proceeds) X
Entries of Disposal
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40. 
IAS 16 requires the following disclosures in the notes to the financial
statements.
 The measurement bases used (cost or revaluation model);
 The depreciation methods used;
 The useful lives or depreciation rates used;
 Gross carrying amounts and the accumulated depreciation at the
beginning and at the end of the period;
 A reconciliation between the opening and closing values for
gross carrying amounts and accumulated depreciation, showing:
DISCLOSURE REQUIREMENTS
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41. 
 Additions during the year;
 Disposals during the year;
 Depreciation charge for the year;
 Assets classified as held for sale in accordance with
IFRS 5;
 Acquisitions of assets through business
combinations;
 Impairment losses;
 The effect of revaluations.
A reconciliation between the opening and
closing values for gross carrying amounts and
accumulated depreciation, showing:
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42. 1/9/2018 IAS-16 42
THE END