IAS 16 PPE

IAS 16 PPE

1. Tangible assets

   • held by an entity for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
   • are expected to be used during more than one period

2. Measurement at recognition

   • all items of PPE are recognised at cost, which includes
     • Purchase price, including
       • import duties
       • non-refundable purchase taxes
       • less trade discounts and rebates
     • Directly attributable costs
       • costs of bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management
         • 1. Employee benefit costs (salary, pension contributions and other benefits)
           • 2. Cost of site preparation
             • 3. Initial delivery and handling costs
               • 4. Installation and assembly costs
                 • 5. Costs of testing whether the asset is functioning properly
                   • 6. Professional fees.

3. Costs of subsequent expenditure

   • Be treated separately for calculating depreciation on the asset
   • Be capitalised when the cost of the replacement is incurred (provided that the recognition criteria are met).
   • Day-to-day servicing costs, such as repairs and maintenance, should be recognised as an expense when incurred.

4. Measurement after recognition

   • For each class of property, plant and equipment, the entity must choose between the cost model and the revaluation model.
     • Cost model
       • Cost - Accumulation Depreciation - Impairment
     • Revaluation model
       • Fair value at date of revaluation - subsequent accumulated depreciation and impairment
     • Where an item of property, plant and equipment is revalued, all assets in the same class should also be revalued.
     • Revaluations should be carried out sufficiently frequently to ensure the carrying amount of an asset is not materially different from its fair value.

5. Depreciation

   • the measure of the economic benefits of the tangible non-current asset that have been consumed during the period
   • Straight line method
   • Diminishing (reducing) balance method.
     • This method is suitable for those assets which generate more revenue in earlier years than in later years; for example, a machine which may become progressively less efficient as it gets older. Under this method the depreciation charge will reduce from year to year.

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