Ind AS 16 discusses whether expenditure incurred should be should be capitalised as PPE or charged to P&L statement, retirement of PPE, depreciation and disposal of PPE.
I. Property, Plant and Equipment (PPE) – PPE are tangible items which are held for use in producing or supply of goods or services, rentals to others or for administrative purposes and expected to be used during more than a
II. Bearer plant – A bearer plant is a living plant that:
For example, tea bushes are bearer plant whereas the tea leaves are an agricultural produce. Recognition & Measurement
Initial Recognition – At the time when cost is incurred
The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:
Costs are incurred:
Machinery spares should be recognised as PPE only when it satisfies the definition of PPE. If such spares do not satisfy the definition of PPE, then it should be classified as inventory and charged to P&L when issued for usage.
If an item of property, plant and equipment comprises of two or more significant components, with substantially different useful lives, usage or flow of economic benefits then such component should be recognised and depreciated separately over its respective useful life. For e.g. a building may be split into various components such as structural design, elevators, heating system and water system.
A condition of continuing to operate an item of PPE (for example, an aircraft) may be performing regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognised in the carrying amount of the item of PPE as a replacement if the recognition criteria are satisfied.
Subsequent Recognition – At the reporting date
An entity shall choose an accounting policy out of the two models available after initial recognition. The management has to take a call on the method of accounting:
Revaluation shall be performed for entire class of PPE such as plant & machinery or buildings or lands. Entity can follow revaluation model for select class of PPE like only buildings and for rest can follow the cost model.
Derecognition of PPE
First time adoption
Deemed cost of PPE
A first time adopter has the following options available to measure the PPE at deemed cost: