Ind AS-16
Property, Plant and Equipment
by
CA, D.S. Rawat
Partner, Bansal & Co.
Property, Plant & Equipment [PPE]
PPE are tangible assets that :

are held for use

expected to be used more than one period
What it covers

Recognition of asset

carrying amount

Depreciation

Impairment
Measurement at recognition
Measure the items of PPE at initial recognition at its Cost.
Elements of cost
 Purchase price
 Costs directly attributable to bringing the asset to the location & condition
 Initial estimate of the costs of dismantling & removing the items & restoring
the site on which it is located.
Measurement of cost
 Cash price equivalent at the recognition date
 if acquired in exchange for non-monetary asset – at fair value
 PPE held by a lessee under finance lease – as per Ind AS-17
Cost of dismantling/decommissioning
• The elements of cost to be incorporated in the initial recognition of an
asset are to include the estimated costs of its eventual dismantlement
(‘decommissioning cost’). That is, the cost of the asset is “grossed up”
for these estimated terminal costs, with the offsetting credit being posted
to a liability account.
• It is important to stress that recognition of a liability can only be effected
when all the criteria set forth in Ind AS-37 for the recognition in
provisions are met.
• It seems odd to capitalize decommissioning costs that are not going to
emerge until later in the asset’s life. However if there is an obligation as a
direct consequence of acquiring or constructing property, plant and
equipment to incur further costs in the future that cannot be avoided.
Cost of dismantling/decommissioning
• A provision is recognized in accordance with Ind AS-37. Therefore, the
decommissioning costs at the end of the asset’s life are just as much a
cost of acquiring or constructing the asset as the costs incurred at the start
of the asset’s life.
• Decommissioning or similar costs such as dismantling expenditure can
often arise in connection with operating leases and leasehold
improvements.
Measurement after initial recognition – Accounting
policy election
 Cost model
 Revaluation model
Cost Model
At cost
less
Any accumulated depreciation less
Any accumulated impairment losses
Revaluation Model
Fair value
less
Subsequent accumulated depreciation
less
Subsequent accumulated impairment losses
Revaluation Model
If an items of PPE is revalued, the entire class of PPE to which that asset
belongs shall be revalued.
Revaluation increase/ decrease


Increase shall be recognised directly to equity under the heading of
revaluation surplus
Decrease shall be recognised to profit or loss
Subsequent cost

Cost of day-to-day servicing are primarily repairs & maintenance and
recognise in profit & loss as incurred.

Added in carrying amount of PPE if recognition criteria is met
Impairment
Whether an item of PPE is impaired, an entity applied Ind AS-36, “Impairment
of Assets”
Compensation for Impairment
An entity shall include in profit or loss compensation from third parties for
items of PPE that were impaired, lost or given up only when the compensation
becomes receivable.
De-recognition
An entity shall de-recognise PPE
 on disposal
 when no future economic benefits are expected from its use or disposal
Gain & loss on the recognition
 The gain or loss arising from the de-recognition of an item of
PPE shall be included in profit or loss
 Gain shall not be classified as revenue unless Ind AS-17
requires otherwise on a sale and leaseback
Depreciation
Each part of an item PPE with a cost that is significant in
relation to the total cost of the item shall be depreciated
separately
A Building may be split up into the following components:
• Structural design
• Elevators
• Heating system
• Water system
• Electrical system
Depreciable amount

Allocate the depreciable amount of an asset on a systematic
basis over its useful life

Review the residual value and the useful life of an asset at lest
at each annual reporting date
Depreciation Method

The depreciation method used shall reflect the pattern in which
the asset’s future economic benefits are expected to be consumed
by the entity

The depreciation method applied to an asset shall be reviewed at
least at each financial year end
Change shall be accounted for as a change in an accounting
estimate in accordance with Ind AS-8


Methods includes the straight-line method, the diminishing
balance method and Units of Production method
Disclosure


Measurement basis for the gross carrying amount
Reconciliation of carrying amount

Useful life, depreciation, depreciation rate



Accumulated depreciation and impairment
Disclosure of revaluation
Other number of disclosures
Fair value less cost to sell
•
Binding sale agreement
•
Active market
•
Best estimate based on information
Recoverable amount of an individual asset cannot
be determined
No impairment loss is recognised for an individual asset if
related cash generating unit is not impaired
Impairment loss & Deferred tax
If an impairment loss is adjusted in account/financial
statement, any related deferred tax assets or liabilities are
also to be determined as per Ind AS-12 “Income taxes”
Reversal of a impairment loss
• Reversal of impairment loss for individual asset other than
goodwill
• Reversal of impairment loss for cash generating unit
• Reversal of impairment loss for goodwill
Reversal of a impairment loss for individual asset
other than goodwill
Any increase in the carrying amount of an asset above the carrying
amount that would have been determined (net of amortization or
depreciation) had no impairment loss been recognised for the asset in
prior years is a revaluation and should be treated accordingly.
Reversal of impairment loss for cash generating
unit
A reversal of an impairment loss for a cash generating unit should be
allocated to increase the carrying amount of the assets (but never to
goodwill) pro-rata with the carrying amount of those assets.
Reversal of a impairment loss on goodwill
An impairment loss recognised for goodwill cannot be reversed
in a subsequent period
Disclosures
•
•
For each class of assets
Requirement for segment reporting
•
•
Requirement for cash generating unit
Requirement for reversal of impairment loss
THANK
YOU
CA, D.S.RAWAT
Partner, BANSAL & Co.