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Ias 16

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ESHETIE MEKONENE AMARE
ESHETIE MEKONENE AMARE

This document provides an overview of IAS 16, which establishes the accounting requirements for property, plant and equipment. It defines key terms, outlines the requirements for recognition, measurement, depreciation, impairment, derecognition and disclosure of property, plant and equipment. The standard aims to prescribe the accounting treatment for PPE, including how to determine the carrying amount and calculate depreciation charges and impairment losses. It applies to tangible items used in operations or for administrative purposes that are expected to be used for more than one period.

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IAS 16 Property, Plant and Equipment By:- Yohannes Negatu (ACCA,DipIFR)
Overview  OBJECTIVE  SCOPE  DEFINITIONS  RECOGNITION  MEASUREMENT AT RECOGNITION  Elements of cost  MEASUREMENT AFTER RECOGNITION  Cost model  Revaluation model  Depreciation  Impairment  Compensation for impairment  DERECOGNITION  DISCLOSURE
OBJECTIVE  To prescribe the accounting treatment for property, plant and Equipment i.e Recognition, Determination of carrying amount and Depreciation charges and impairment losses.
SCOPE The Standard shall be applied in accounting for property, plant and equipment except:- IFRS 5, IFRS 6, IAS 41
DEFINITIONS PPE:- 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.
continued Carrying amount :-is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses. Depreciation;- is the systematic allocation of the depreciable amount of an asset over its useful life.
continued Fair value:-is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
continued Recoverable amount:- is the higher of an asset’s fair value less costs to sell and its value in use. Value in use :-is the present value of the future cash flows expected to be derived from an asset or cash generating unit.
continued A cash-generating unit:-is the smallest Identifiable group of assets that generates cash Impairment:- is a fall in the value of an asset i.e recoverable less than its carrying amount.
RECOGNITION The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if: (a)it is probable that future economic Benefits associated with the item will flow to the entity; and (b) the cost of the item can be measured
MEASUREMENT An item of property, plant and equipment that qualifies for recognition as an asset shall be Measured at its cost.
Elements of cost The cost of an item of property, plant and equipment comprises: (a)its purchase price, including import duties and non refundable purchase taxes, after deducting trade discounts and rebates.
continued (b) any costs directly attributable to bringing the asset to the location and condition Necessary for it to be capable of operating in the manner intended by management. (c) the initial estimate of the costs of Dismantling And removing the item and restoring the site on which it is located and any obligation associated
continued Examples of directly attributable costs are:- (a) costs of employee benefits (as Defined in IAS 19 Employee Benefits) Arising directly from the construction Or acquisition of the item of property, plant and equipment;
continued (b) costs of site preparation; (c) initial delivery and handling costs; (d) installation and assembly costs; (e) costs of testing (f) professional fees
continued Examples of costs that are not costs of an item of property, plant and equipment are: (a) costs of opening a new facility; (b) costs of introducing a new product or Service (including costs of advertising and promotional activities);
continued (c) costs of conducting business in a new location or with a new class of customer (including costs of staff training); and (d) administration and other general overhead costs.
MEASUREMENT AFTER RECOGNITION An entity shall choose either the cost model or The revaluation model. Cost model After recognition as an asset, an item of property, plant and equipment shall be Carried at its cost less any accumulated Depreciation and any accumulated
continued Revaluation model  After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
continued  If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued.
continued examples of separate classes: (a) land; (b) land and buildings; (c) machinery; (d) ships; (e) aircraft; (f) motor vehicles; (g) furniture and fixtures; (h) office equipment; and (i) bearer plants.
continued If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation
continued However, the increase shall be recognized in profit or loss to the Extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss.
continued If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in profit or loss. However, the decrease shall be recognized in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognized in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.
Depreciation  Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be Depreciated separately.
continued e.g. airframe and engines of an Aircraft The depreciation charge for each period shall be recognized in profit or loss unless it is included in The carrying amount of another asset.
continued The depreciable amount of an asset shall be allocated on a systematic basis over its useful life. The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
continued Depreciation is recognized even if the fair value of the asset exceeds its carrying amount, as long as the asset’s residual value does not exceed its carrying amount.
continued Depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.
continued Depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no production.
continued The depreciation method applied to an asset Shall be reviewed at least at each financial year end and, if there has been a significant change, the method shall be changed. Such a Change shall be accounted for as a change in an accounting estimate in accordance with IAS 8.
Impairment To determine whether an item of property, plant and equipment is impaired, an entity applies IAS 36 Impairment of Assets.
Compensation for impairment Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up shall be included in profit or loss when the compensation becomes receivable.
Derecognition 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.
Disclosure The financial statements shall disclose, for each class of property, plant and equipment: (a) the measurement bases used for determining the gross carrying amount; (b) the depreciation methods used; (c) the useful lives or the depreciation rates used; (d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period;
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More Related Content

Ias 16

  • 1. IAS 16 Property, Plant and Equipment By:- Yohannes Negatu (ACCA,DipIFR)
  • 2. Overview  OBJECTIVE  SCOPE  DEFINITIONS  RECOGNITION  MEASUREMENT AT RECOGNITION  Elements of cost  MEASUREMENT AFTER RECOGNITION  Cost model  Revaluation model  Depreciation  Impairment  Compensation for impairment  DERECOGNITION  DISCLOSURE
  • 3. OBJECTIVE  To prescribe the accounting treatment for property, plant and Equipment i.e Recognition, Determination of carrying amount and Depreciation charges and impairment losses.
  • 4. SCOPE The Standard shall be applied in accounting for property, plant and equipment except:- IFRS 5, IFRS 6, IAS 41
  • 5. DEFINITIONS PPE:- 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.
  • 6. continued Carrying amount :-is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses. Depreciation;- is the systematic allocation of the depreciable amount of an asset over its useful life.
  • 7. continued Fair value:-is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
  • 8. continued Recoverable amount:- is the higher of an asset’s fair value less costs to sell and its value in use. Value in use :-is the present value of the future cash flows expected to be derived from an asset or cash generating unit.
  • 9. continued A cash-generating unit:-is the smallest Identifiable group of assets that generates cash Impairment:- is a fall in the value of an asset i.e recoverable less than its carrying amount.
  • 10. RECOGNITION The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if: (a)it is probable that future economic Benefits associated with the item will flow to the entity; and (b) the cost of the item can be measured
  • 11. MEASUREMENT An item of property, plant and equipment that qualifies for recognition as an asset shall be Measured at its cost.
  • 12. Elements of cost The cost of an item of property, plant and equipment comprises: (a)its purchase price, including import duties and non refundable purchase taxes, after deducting trade discounts and rebates.
  • 13. continued (b) any costs directly attributable to bringing the asset to the location and condition Necessary for it to be capable of operating in the manner intended by management. (c) the initial estimate of the costs of Dismantling And removing the item and restoring the site on which it is located and any obligation associated
  • 14. continued Examples of directly attributable costs are:- (a) costs of employee benefits (as Defined in IAS 19 Employee Benefits) Arising directly from the construction Or acquisition of the item of property, plant and equipment;
  • 15. continued (b) costs of site preparation; (c) initial delivery and handling costs; (d) installation and assembly costs; (e) costs of testing (f) professional fees
  • 16. continued Examples of costs that are not costs of an item of property, plant and equipment are: (a) costs of opening a new facility; (b) costs of introducing a new product or Service (including costs of advertising and promotional activities);
  • 17. continued (c) costs of conducting business in a new location or with a new class of customer (including costs of staff training); and (d) administration and other general overhead costs.
  • 18. MEASUREMENT AFTER RECOGNITION An entity shall choose either the cost model or The revaluation model. Cost model After recognition as an asset, an item of property, plant and equipment shall be Carried at its cost less any accumulated Depreciation and any accumulated
  • 19. continued Revaluation model  After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
  • 20. continued  If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued.
  • 21. continued examples of separate classes: (a) land; (b) land and buildings; (c) machinery; (d) ships; (e) aircraft; (f) motor vehicles; (g) furniture and fixtures; (h) office equipment; and (i) bearer plants.
  • 22. continued If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation
  • 23. continued However, the increase shall be recognized in profit or loss to the Extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss.
  • 24. continued If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in profit or loss. However, the decrease shall be recognized in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognized in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.
  • 25. Depreciation  Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be Depreciated separately.
  • 26. continued e.g. airframe and engines of an Aircraft The depreciation charge for each period shall be recognized in profit or loss unless it is included in The carrying amount of another asset.
  • 27. continued The depreciable amount of an asset shall be allocated on a systematic basis over its useful life. The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
  • 28. continued Depreciation is recognized even if the fair value of the asset exceeds its carrying amount, as long as the asset’s residual value does not exceed its carrying amount.
  • 29. continued Depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.
  • 30. continued Depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no production.
  • 31. continued The depreciation method applied to an asset Shall be reviewed at least at each financial year end and, if there has been a significant change, the method shall be changed. Such a Change shall be accounted for as a change in an accounting estimate in accordance with IAS 8.
  • 32. Impairment To determine whether an item of property, plant and equipment is impaired, an entity applies IAS 36 Impairment of Assets.
  • 33. Compensation for impairment Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up shall be included in profit or loss when the compensation becomes receivable.
  • 34. Derecognition 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.
  • 35. Disclosure The financial statements shall disclose, for each class of property, plant and equipment: (a) the measurement bases used for determining the gross carrying amount; (b) the depreciation methods used; (c) the useful lives or the depreciation rates used; (d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period;