PPE

1. Property, Plant & Equipment
Rajesh Pathak
Indian Institute of Management, Raipur

2. Overview of Long-Lived Assets
• Property, Plant & Equipment or PPE (IndAS16)
• Long-lived assets - Resources that are held for an extended time, such as land,
buildings, equipment, natural resources, and patents
• These assets help produce revenues over many periods by facilitating the
production and sale of goods or services to customers.
• As per IndAS: Property, plant and equipment are 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. (Life >12 months)
• Exclusions: Non-Current assets held for sale (IndAS 105); exploratory assets linked to mining
(IndAS 106); biological assets related to agricultural activity except bearer plants (Cows for
Amul; bamboo or sugarcane are not PPE, covered under IndAS 41) etc.
An item of property, plant and equipment that qualifies for recognition as an asset shall
be measured initially at its Cost.

3. Initial Recognition Cost
• The Cost of an item of property, plant and equipment comprises:
• All costs involved in bringing the asset to the present location and condition necessary for it to
be capable of operating in the manner intended by management.
Cost Elements
Purchased Asset
Purchase Price ###
Import duties ###
Non-refundable taxes ###
Directly attributable costs ###
(transportation, installation, site
preparation, testing, insurance
on purchase etc., but no T&D,
inauguration exp. etc)
Discount/Rebates (###)
PV of site restoration* ###
(also referred as dismantling or
decommissioning, obligation due
to law or customary)
Total Cost $$$
Self Constructed Asset
Material ###
Labour ###
Production overheads ###
Borrowing costs ###
(if qualifying asset as per Ind
AS 23)
PV of site restoration ###
(Bearer plants treated like SCA)
Total Cost $$$
Usually a period of > 12 months considered to
be substantial
The amount of borrowing costs that an entity
capitalizes during a period shall not exceed the
amount of borrowing costs it incurred during
that period.
A qualifying asset is an asset that necessarily
takes a substantial period of time to get ready
for its intended use

4. Recognition (Special Case)
Cost Elements
Deferred Payment
Payment term > 12 M
• Financing Transaction
• Finance charges can’t be included as
cost of asset unless its qualifying
asset.
• Recording at Cash price
• If cash price not available, then PV
of agreed payments
Payment term < 12 M
• Recording at invoice price
• No hidden financing assumed
Barter (exchange of asset)
• It has commercial substance
I. PPE recorded at the FV of
asset given up
II. If (I) not available, FV of
asset acquired
III. Else, WDV of asset given
up
• It doesn’t has commercial
substance (Similar Asset)
• PPE recorded at the WDV
of asset given up
Subsequent Expenditure
• Repairs & maintenance to be expensed
• Expenses increasing life or improving
capacity to be capitalized
Major Replacement/Overhaul
• New BV: (WDV of asset + Cost of new
part - WDV of old part)
• WDV of old part can be ascertained as
follows
• Break up from invoice
• If not, FV of the old part at the time
of new part purchase
• Else, cost of new part (time value
adjusted) considered notional cost of
new item and depreciated value
considered
Repairing damaged Asset
• Asset impaired at the time of
damage
• Capitalize the repair cost
Repairing damaged Asset
• Asset unimpaired at the time of
damage
• Expense the repair cost

5. Subsequent Valuation
Accounting Policy Choice
Based on class of PPEs (similar nature & use)
Valuation Models
Cost Model
Original cost ****
Less: Acc. Depr. ****
Carrying Value/WDV ****
Revaluation Prohibited
Revaluation Model
Fair Value (at sufficient interval)
**
Subsequent- Concept of
Conservatism
Initial Downward Evaluation
• Loss in P&L
• Subsequent Upward
• P&L (extent of loss
already booked)
• Excess (if any OCI)
Initial Upward Evaluation
• Revaluation surplus (OCI)
• Subsequent downward
• Balance in OCI
• Excess (if any P&L)
Non-Reclassifiable OCI
May be written-off

6. Depreciation
Converting Assets into expenses
Matching concept
Methods
• Choice based on pattern of economic
benefits expected (e.g. L&B Vs. PC)
• SLM, WDV, units of production
etc.
• Component Method
• Asset has major component
• Component has separate useful
life
• Eg. Building with components
(furnished; elevators)
• Not applicable to Car & Engine
• Can’t appreciate asset longer than
its life
Estimates
Estimation (requires annual review)
• Useful Life
• Salvage Value
• Depreciation Method
Any changes apply
prospectively.
Depreciation
Provision for Restoration
• Cost Model
• Unwinding as finance cost
• Change in estimation
prospective only and cost of
asset adjusted in PV terms
• Revaluation Model
• Unwinding as finance cost
• Change in estimation
prospective only and affected
through OCI
• Excess to go in P&L

7. Others
• The carrying amount of an item of property, plant and equipment shall
be derecognized:
• (a) on disposal; or
• (b) when no future economic benefits are expected from its use or disposal.
• The gain or loss arising from the derecognition of an item of property,
plant and equipment shall be included in profit or loss when the item is
derecognized
• Gains shall not be classified as revenue.

8. Case Discussion