Paper F7
Chapter 23
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IAS 16 PROPERTY, PLANT AND EQUIPMENT
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principal issues:
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timing and recognition
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determination of carrying amount
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depreciation charge to be recognised
IAS 16 does not apply to forests and similar regenerative natural resources, nor to minerals, oils and similar non-regenerative natural
resources
residual value is the net amount which the entity expects to obtain for an asset at the end of its useful life after deducting the
expected costs of disposal.
fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length
transaction.
carrying amount is the amount at which an asset is recognised in the Statement of Financial Position after deducting any
accumulated depreciation and accumulated impairment losses.
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an impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.
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recognise an asset when:
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it is probable that future economic benefit will flow to the entity, and …
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… cost of the asset can be reliably measured
Benchmark Treatment
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should be carried at cost less accumulated depreciation
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cost includes purchase price, import duties and non-refundable purchase taxes …
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… but is net of trade discounts and rebates
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cost also includes expenses directly attributable to bringing the asset to a working condition
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132 Chapter 23
IAS 16 Property, Plant and Equipment
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Paper F7
September/December 2016
examples:
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site preparation costs
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delivery and handling costs
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installation costs
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professional costs eg engineers and architects
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estimated costs of disassembly and site restoration
subsequent expenditure should only be recognised as an asset when, as a result, there is improvement in the asset’s standard of
performance
examples:
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modifications which extend the asset’s useful life
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upgrading an asset to improve its performance
PPE – allowed alternative (revaluation model)
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subsequent to initial recognition at cost, ppe can be carried at a revalued amount but only if fair value can be reliably measured
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revalued amount is fair value at date of revaluation less subsequent accumulated depreciation and impairment losses
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revaluations should be carried out regularly
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accumulated depreciation at the revaluation date should either be restated proportionately, for example if indexing is used, or …
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... eliminated in accounting for the revaluation
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double entry on revaluation
Dr
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accumulated depreciation (until reduced to $ nil)
ppe
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revaluation reserve
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revaluation reserve transferred to retained earnings when asset sold, or …
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… proportionately transferred to retained earnings throughout the asset’s remaining life
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fair values:
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land and buildings – market value determined by professionally qualified valuers
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ppe- market value determined by appraisal
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if no recognised market, value at depreciated replacement cost
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