Download - Ind AS: 16 Property, plant and equipment
IND AS-16Property, Plant and Equipments
By – MANUL JAIN
SCOPE Accounting for Property, Plant and
Equipment except when another Standard requires or permits a different accounting treatment.
Does not Apply to:- Property, Plant and Equipments classified as held
for sale (Ind AS 105) Biological Assets related to agricultural activity
other than Bearer Plants (Ind AS 41) Exploration and Evaluation Assets (Ind AS 106) Mineral Rights and Mineral Reserves
Property, Plant and Equipment(PPE)- Definition
Tangible items held for:-1. Use in production or supply of goods and services
2. Rental to others3. For administrative purposes
“AND” Expected to be used
during more than one period
RECOGNITION CRITERIAThe cost of an item of Property, Plant and Equipment shall be recognized as an asset if:
(a) It is probable that FUTURE ECONOMIC BENEFITS from PPE will flow to the entity; “AND”
(b) The cost of the item can be measured reliably.
SPARE PARTS, STAND BY EQUIPMENTS AND SERVICING EQUIPMENTS
To be recognized as PPE only when they meet the definition of Property, Plant and Equipment, otherwise such items are classified as INVENTORY
Do not recognize the cost of day to day servicing of the items, as they are primarily the costs of labour and consumables, and may include the cost of small parts.
Costs of each Major Inspection is recognized in the carrying amount of the item of PPE if the recognition criteria are satisfied.
MEASUREMENT AT RECOGNITION
An item of PPE that qualifies for recognition as an asset shall be initially measured at its COST.
Recognition of costs in the carrying amount of an item of PPE ceases
when it is in the location and condition necessary for it to be
capable of operating in the manner intended by the management.
ELEMENTS OF COSTIts Purchase price, including import duties and non
refundable purchase taxes, after deducting trade discounts and rebates.
Costs directly attributable to bring
the asset to the location and
condition necessary for it to be capable of operating in the
manner intended by the management.
The initial estimate of the costs of
dismantling and removing the item and restoring the site on which it is
located.
DIRECTLY ATTRIBUTABLE COSTS
Costs of employee benefits arising directly from the construction or acquisition of the item;
Costs of site preparation; Initial delivery and handling costs; Installation and assembly costs; Costs of testing after deducting the net
proceeds selling any items produced; Professional fees.
COST ELEMENT - EXCLUSION
1. Costs of operating a new facility;
2. Costs of introducing a new product or service or conducting business in a new location;
3. Administration and other general overheads;
4. Initial operating losses, such as at the time when the demand builds up;
5. Costs of relocating or reorganizing part.
EXCHANGE OF ASSETS
If PPE is acquired in
exchange for a non- monetary asset or assets,
or a combination of monetary and
non monetary assets.
Measured at FAIR VALUE
unless:(a)The exchange transaction lacks
commercial substance
OR(b) Fair value of neither the asset
received nor given up can be
reliably measured.
If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset
given up.
MEASUREMENT AFTER RECOGNITION
Two Alternatives available:
COST MODEL
Revaluation
Model
These Models are Accounting Policies and should be applied on each class of asset.
COST MODEL After recognition as an asset, an item of PPE
shall be carried at :
ITS COST
LESS ANY ACCUMULATED DEPRECIATION
LESS ANY ACCUMULATED IMPAIRMENT LOSSES
REVALUATION MODEL After recognition as an asset, an item of PPE shall be
carried at:Revalued amount, being its fair
value as at the date of revaluation
Less any subsequent accumulated depreciation
Less any subsequent accumulated impairment
losses
Revaluation Model – Imp. Points
Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from fair value at the end of reporting period.
If an item of PPE is revalued, the entire class of PPE to which the asset belongs shall be revalued.
The items within a class of PPE are revalued simultaneously to avoid selective revaluation of assets and reporting of amounts in the Financial Statements that are a mixture of costs and values as at different dates.
REVALUATION ADJUSTMENT
UPWARD REVALUATION
• Recognized in other comprehensive income and accumulated in equity under heading of Revaluation Surplus.
• Recognized in P&L to the extent of revaluation decrease of same asset previously recognized in P&L
DOWNWARD REVALUATION
• Recognized in P&L• Recognized in other
comprehensive income to the extent of any credit balance existing in revaluation surplus in respect of that asset.
REVALUATION SURPLUS TREATMENT
1• Transfer the whole of the
surplus directly to retained earnings when the asset is derecognized.
2• Transfer an amount equal
to the difference between depreciation based on revalued carrying amount of the asset and that based on asset’s original cost to retained earnings.
DEPRECIATION Depreciation is the systematic allocation of the
depreciable amount of an asset over its useful life.
Depreciation of an asset begins when it is available for use, i.e., it is capable of being operated in the manner intended by the management.
Depreciable amount = (Cost or Substituted Cost)-Residual Value
Residual Value = Estimated proceeds from the Disposal of asset – estimated cost of Disposal
USEFUL LIFE OF AN ASSET- KEY FACTORS
Expected usage of the asset.
Expected physical wear and
tear, which depends
upon various
operational factors
Technical or
commercial
obsolescence arising
from:(a) Change
or improveme
nt in Production
;(b) Change
in the market demand
Legal or Similar
limits on the use of the asset
DEPRECIATION - KEY POINTS Each part of an item of PPE with a cost that is significant in relation to
the total cost of the item shall be Depreciated Separately. (Component Accounting)
Entity allocates the amount initially recognized in respect of an item of PPE to its significant parts and depreciate separately each such part.
The Depreciation charge for each period shall be recognized in Profit and Loss unless it is included in the carrying amount of another asset.
The residual value, useful life and method of depreciation shall be Reviewed at least at each Financial Year End and any change(s) in them shall be accounted for as a Change in Accounting Estimate in accordance with Ind AS 8.
DEPRECIATION METHODS The Depreciation Method used shall reflect the pattern in
which the Asset’s Future Economic Benefits are expected to be consumed by the entity.
Straight Line
Method
Diminishing
Balance Method Units of
Production Method
DEPRECIATION
METHODS
IMPAIRMENT
Impairment of assets including items of PPE
dealt by Ind AS 36
Compensation from third parties for items of PPE
impaired, lost or given up shall be included in P&L
when it becomes receivable.
DERECOGNITIONThe carrying amount of an item of PPE shall be derecognized:• On Disposal; OR• When no Future Economic Benefits are expected
from its use or disposal.The Gain or Loss arising from Derecognition shall be included in Profit or Loss when the item is derecognized. Gains shall not be classified as Revenue.
The Gain or Loss arising from the derecognition shall be determined as the difference between the Net Disposal Proceeds, if any, and the Carrying Amount of PPE.
DISCLOSURE Measurement bases for determining the Gross carrying amount; Depreciation methods used; Useful lives or the Depreciation rates used; Gross carrying amount and the accumulated depreciation at the
beginning and end of the period; Reconciliation of the Carrying Amount at the beginning and end
of the period (Additions; Assets classified as held for sale; Acquisitions through Business Combinations; Revaluation, Impairment; Depreciation; exchange differences and other changes)
The existence and amounts of Restrictions on Title to items of PPE; Items of PPE Pledged as Security for Liabilities; Contractual Commitments for the acquisition of PPE; Amount of Compensation from third parties for item of PPE (if not
disclosed separately in P&L)
Disclosures – Revalued Assets The effective date of the revaluation; Whether an independent valuer was
involved; Carrying amount of each class of PPE, if the
Cost Model had been applied; The revaluation surplus, indicating the
changes for the period and any restrictions on the
distribution of the balance to shareholders.