Property Plant and Equipment

IAS 16 Property, Plant and Equipment

This Standard is for the accounting treatment for property, plant and equipment. This principal is used in accounting for property, plant and equipment, their recognition, the determination of their cost amounts and the depreciation charges.

·         Tangible items that;

--> Held for use in the production or supply of goods or services, for rental purposes, or for any other business Purposes.

--> Used for more than one period.

·         Cost of an item;

--> Its purchase price, import duties, non-refundable taxes are included, and trade Discounts and rebates are deducted.

--> Costs in bringing the asset to the location and making it Capable of operating in the manner that is required.

--> Costs of removing the item and restoring the site.

·         Measurement after recognition;

these are measured by 2 methods;
 --> cost model.
--> revaluation model.

·         Cost Model:

After recognition, property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

·         Revaluation Model:

After recognition, property, plant and equipment can be measured at a revalued amount, its book value at the date of the revaluation less accumulated depreciation and accumulated impairment losses. Revaluations shall be made with regularity to ensure that the cost value does not differ materially which would be determined using book value at the end of period.

·    Increase in Value:

      If an asset’s book value is increased as a result of a revaluation, the increase shall be recorded in income and add in equity under the heading of revaluation surplus. However, the increase shall be recorded in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recorded in profit or loss.

• Decrease in Value:

If an asset’s book value is decreased as a result of a revaluation, the decrease shall be recorded in profit or loss. However, the decrease shall be recorded in income to the extent of any credit balance existing in the revaluation surplus in respect of that asset.

·         Depreciation:

      It  is the systematic allocation of the depreciable amount of an asset over its useful life. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. 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.  The depreciation charge for each period shall be recorded in profit or loss unless it is included in the book value of another asset.
     
      The depreciation method used shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.

·        Residual Value:

      It is the value of an asset as the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.