IND AS 16 provides guidance on accounting for plant, property and equipment (PPE). Key points include: - An asset must meet the definition of a PPE to be classified as such, which includes being held for use in production, rental or administration with a useful life of more than 12 months. - Initial recognition of a PPE involves capitalizing all costs required to bring the asset to working condition. Special cases like barter transactions also have specific guidance. - Subsequent expenditures are generally expensed unless increasing the life or efficiency of the asset. Major replacements are capitalized by adjusting the carrying value. - PPE can be carried at cost or revaluation model with periodic revaluations and accounting for

1. IND AS 16
Plant, Property and Equipment

2. What is an Asset ?
• An asset is a resource
• controlled by the entity
• as a result of past events and
• from which future economic benefits are expected to flow to
the entity
Direct
Contribution to
Revenue
Saving In Cost

3. Scope of PPE
PPE
Includes
Tangible Asset Held for Use
Producing Goods or
services
Rental to others
For administration
Purpose
Life>=12 Months
Excludes
Non current Asset
held for sale ( IND
AS 105)
Exploratory and
Evaluatory asset
linked to mining (
IND AS 106)
Biological asset for
agriculture use
(except bearer plants)
( IND AS 41)

4. Key Rule
Before classification of an item into PPE, Investment or Inventory, the expenditure
should satisfy the asset definition and condition to recognize the asset as per the
framework.
Once it is recognized as an asset, considering the intention of usage it is classified as
PPE, Investment of inventory

5. Case - 1
A Public limited company whose main object as stated in its moa is to purchase,
acquire, contract, develop, cultivate and sell agricultural and urban lands, buy large
plots of virgin lands, develops and cultivate them and sells them in small plots.
Land purchased by the company and the cost of development has been consistently
grouped under fixed asset in its BS. Comment

6. Case – 1 - Solution
As Per IND AS 16. PPE is a tangible asset which is held for producing goods,
providing services, rental to others or administration purpose. The Main basis for
classification is intention of usage of the asset rather than the nature of the entity.
As per INDAS 2, Inventory is an asset which held for sale in the ordinary course of
business etc
In the given case, the entity is purchasing the land to develop and sell it in the
ordinary course of business. The land does not satisfy the definition of a PPE as per
IND AS 16. But it satisfies the definition of inventory as per INDAS 2. Hence
classifying it as inventory and presenting under current asset would be correct. The
Accounting treatment of company is not correct.

7. A. Initial Recognition (General Cases)
Initial
recognition
(Cost)
Purchased
Asset
Self
constructed
Asset
Purchase Price xxx
+ Non Creditable Taxes xxx
- Trade Discount (xxx)
+ Directly attributable expenses xxx
+ Present value of site restoration xxx
Total Cost xxxx
Material xxx
+ Labour xxx
+ Production Overhead xxx
+ Borrowing Cost (If it is QA) xxx
+ Present value of site restoration xxx
Total Cost xxxx

8. Special Cases
Deferred Payment
Payment Terms >= 12
Months ( Beyond
Normal Terms)
Financing Transaction
(hidden loan/ Interest)
PPE Should be recorded
at cash price. If cash
price is not available,
then PV of agreed
payments.
Payment Term < 12
Months (within Normal
Terms)
No Hidden Financing
(It may involve a cash
discount)
PPE to be recorded at
the agreed invoice price
(cash discount – P&L)
Barter
Has Commercial
Substance
PPE to be recorded at
fair value i.e. Fair Value
of asset given up unless
FV of asset is received
is more reliable
i) FV of Asset Given up
ii) If (i) not available , FV of asset
received
iii) If (i) and (ii) not available , WDV
of asset given up
Lacks Commercial
Substance
PPE to be recorded at
WDV of Assets given
up
If the Fair value of items given up and received
are same, then we can take either .
However, if the Fair value differ and no
information is given on reliability , the following
order of preference to be followed
B. Initial Recognition (Special Cases)

9. Lack of Commercial Substance
• A Transaction lacks commercial substance if the position of the company
remains the same before and after a barter i.e. the nature of expenses and
incomes are expected to remain similar pre and post barter.
• If similar asset are exchanged, we can consider that the transaction lacks
substance. If nothing is given, we will assume that a transaction has
commercial substance.

10. Subsequent Expenditure
Repair and maintenance (
day to day) and Minor
Replacements
Expensed to P&L
Expenses increasing life or
efficiency beyond
originally assessed
Capitalized
Major replacement/
Inspection/ Overhaul
WDV of Asset xxx
+ Cost of New part xxx
- WDV of old Part * xxx
Revised WDV xxxx
Expenditure to Repair
Damaged Asset
Asset is Impaired at the
time of damage
Subsequent repair cost
capitalized
Asset not impaired at the
time of damage
Subsequent repair cost
expensed to P & L
Subsequent Expenditure

11. WDV of Old Part
• The cost of the old part can be found through the below sources ( in order of
Preference)
• Breakup from the suppliers invoice
• Fair value of the part at the time of purchase
• If the above value are not available , the cost of the new part (time value adjusted)would be taken
as the notional cost for the old part.
The WDV of the old part can be calculated by deducting depreciation applicable.

12. Subsequent Valuation
Valuation Model
Cost Model
Original Cost xxx
- Acc Depreciation xxx
WDV/ Carrying Value xxx
Revaluation Model
Fair Value (Determined at
sufficient Interval) xxxx
- Subsequent Depreciation xxx
Carrying Value xxxx

13. Revaluation Model
1. Valuation Model should be selected separately for each class of PPE i.e. Asset having similar
nature and end use would form part of single class.
2. Revaluation should be done at sufficient intervals i.e. Annually for assets with volatile values
and every 3-5 years for asset with stable values
3. A change from cost to revaluation model or vice versa is treated as change in accounting
policy and will be retrospective applied (IND AS 8 ) unless impracticable.
Revaluation Model

14. Revaluation
Initial
Upward
Revaluation
Surplus
(O.C.I)
Initial
Downward
Profit and
Loss A/c
Subsequent Downward
1. Balance in Revaluation (O.C.I)
2. Excess (IF ANY) in P & L
Subsequent Upward
1. P&L ( to the Extent of loss
already debited)
2. Excess (IF ANY) in Revaluation
Surplus (O.C.I)

15. Transfer of Revaluation Surplus
The balance in the revaluation surplus ( non re classifiable OCI) may be written off to retained
earnings in the ratio of depreciation. However , the transfer from revaluation surplus should be
made directly to the retained earnings and should not be shown as income in the statement of
profit and loss.
At the time of sale, the remaining balance in revaluation surplus should be transferred to
retained earnings.

16. Depreciation
Depreciation
Method [Based on
Pattern of Economic
Benefits Expected]
SLM, WDV, Units of
Production Etc.
Estimates (to be
reviewed annually)
Useful Life Salvage Depreciation Method
Component Method
Asset has Major
Component Component have
separate Life
Any change will be applied prospectively
Depreciation of the component (Major Parts/ Inspection/ overhauls)
1. The Depreciation on each part should be based on useful life of the
part.
2. However if the part exceed the life of the asset , then it would be
appropriate to depreciate the part over the life of the part or the
remaining life of asset whichever is shorter.

17. Changes in Provision for Site Restoration
Changes in provision
Cost Model
Adjust the present value
against the cost of PPE in the
year of change
Revaluation Model
Adjust the present value of changes against the balance in
revaluation surplus (if any) & excess if applicable to profit and loss
in the year of change
(alternative treatment of adjustment against cost is also possible)