It covers the aspects of accounting for property, plant and equipment and represents the list of items falls into Tangible Non-Current Assets.
Definition Of PPE:
Following assets fall outside the ambit of IAS 16:
Components of Cost Recognition:
PP&E are supposed to be recorded at Cost. However, there are two exceptions where they are recorded at Fair Value:
Exchange of Assets:
Asset acquired through exchange transactions should be recognized at Fair Value unless:
If the acquired asset has not been measured at Fair Value, the its cost is measured at the Carrying Amount of the asset given up.
Standard offers two possible treatments. Entity can record it either at-
Accounting for Revaluation:
|Upward Revaluation||Downward Revaluation|
Revaluation Surplus disclosed under the heading OCI will be transferred to “Retained Earnings” when asset is fully Depreciated or Derecognized.
The frequency of Valuation depends on the Volatility of Fair Values of individual items of PP&E.
More volatile Fair Values, more frequently revaluations supposed to be carried out.
When an asset requires regular overhauls/major inspection for faults, then such cost is treated as an additional component and required to be depreciated over the period of asset’s useful life.
Retirement and Disposals:
When an asset is permanently withdrawn for use or sold/scrapped, and no future economic benefits are expected, then it should be withdrawn from PP&E.
Gains or Losses on disposal should be recognized in P&L as income/expense. An entity cannot classify gain as revenue on disposal of specific item of PP&E.
It is a result of systematic allocation of depreciable amount of an asset over its useful life. Depreciable Assets are assets which:
Factors considered in determining Useful Life:
Methods should reflect pattern in which assets Future Economic Benefits (FEB’s) are expected to be consumed by entity. Following are the available methods:
Change in Depreciation Method will be considered as Change in Accounting Estimate as per IAS 8.
A part of an item of PP&E consists a significant portion in relation to the total cost of item, requires to be depreciated separately.
In case of ship vessel, it will be appropriate to charge depreciation separately on Ship Engine and its vessel frame as both the parts have different useful life.