Objective: IAS 16 prescribes the accounting treatment for property, plant and equipment (PPE) to provide users with information about an entity's investment in PPE and changes in such investment.
- Applies to all PPE unless another standard requires different treatment
- Does not apply to biological assets, mineral rights, or PPE classified as held for sale
- Key issues: recognition, measurement, depreciation, and impairment
Property, Plant and Equipment: Tangible items that are held for use in production/supply of goods/services, for rental, or for administrative purposes; and are expected to be used during more than one period.
- Tangible Assets: Physical substance
- Long-term Use: Expected to be used for more than one accounting period
- Held for Business Operations: Not for sale in ordinary course of business
Examples: Land, buildings, machinery, vehicles, furniture, and equipment.
An item of PPE should be recognized as an asset if:
| Criterion | Description |
|---|---|
| Future Economic Benefits | Probable that future economic benefits will flow to the entity |
| Cost Reliably Measured | Cost of the asset can be measured reliably |
Note: Initial costs include purchase price and directly attributable costs necessary to bring asset to working condition.
Cost Model: PPE is carried at cost less accumulated depreciation and impairment losses.
Revaluation Model: PPE is carried at fair value less subsequent depreciation and impairment losses.
- Entity must choose one model for entire class of PPE
- Revaluations must be made regularly to ensure carrying amount doesn't differ materially from fair value
- Increases in value go to revaluation surplus (OCI), decreases go to profit/loss
Building purchased for $1,000,000 with 20-year life
After 5 years: Carrying amount = $750,000
Fair value = $900,000 → Revaluation surplus = $150,000
- Systematic allocation of depreciable amount over useful life
- Depreciable amount = Cost - Residual value
- Methods: Straight-line, diminishing balance, units of production
- Review depreciation method, useful life, and residual value annually
- Land typically has unlimited useful life and is not depreciated
| Event | Accounting Treatment |
|---|---|
| Disposal | Carrying amount removed; gain/loss recognized in P&L |
| Retirement | Carrying amount removed; no future economic benefits expected |
| Exchange | Asset acquired measured at fair value unless exchange lacks commercial substance |
- Measurement bases used for PPE
- Depreciation methods and useful lives/residual values
- Reconciliation of carrying amount at beginning and end of period
- Existence and amounts of restrictions on title
- Expenditures for PPE in progress
- Contractual commitments for PPE acquisitions
- Compensation for PPE impaired, lost or given up