PROPERTY, PLANT & EQUIPMENT [IAS 16]

PROPERTY, PLANT & EQUIPMENT [IAS 16] • LECTURE OBJECTIVES: • Cost determination of assets • Subsequent expenses • Rehabilitation & Decommissioning • Accounting for component assets • Major components • Collective components • Revaluation of assets • Gross & net replacement methods • Implementation dates • Treatment of reserves • Impairment of assets • Disclosure requirements PPE - IAS 16

PPE [IAS 16]DEFINITION [p6] • NATURE OF PPE • Used to generate revenue • Use in production/supply of goods • Administrative purposes • More than one financial period • CLASSIFICATION • Nature of assets • Land & buildings • Recognised separately • Determine costs separately • Expected useful lives • Land not depreciated PPE - IAS 16

PPE [IAS 16]COMPONENTS • CRITERIA: p10 • Separately identifiable • Different useful lives • Significant w.r.t. measurement • RECOGNITION: p43 & 44 • Significant • Separate asset/component • Similar = group [Depreciate = separately p44] • Insignificant • Aggregate individual items [Appropriate rate p45] • Part of remaining principle asset [Depreciate = principle asset] PPE - IAS 16

PPE [IAS 16]COMPONENTS • REPLACEMENT OF PARTS [p70] • INITIALLY RECOGNISED • Derecognised replaced part • Carrying amount • Recognise replacement part • Cost at initial recognition • NOT RECOGNISED • Derecognise the replaced part • At deemed carrying amount • Based on replacement cost • Depreciated cost [used asset] • Recognise replacement part PPE - IAS 16

PPE [IAS 16]SPARE PART & STAND-BY • RECOGNITION: p8 • Inventory [insignificant] • Expensed via profit & loss • Major spare part & stand-by • Qualify as PPE • Specific to plant & equipment • Meet asset criteria • RECOGNITION [p10] • Significant • Separate asset/component • Similar = group • Insignificant • Aggregate individual items • Part of remaining principle asset PPE - IAS 16

PPE [IAS 16]EXCHANGE OF ASSETS • DEFINITION: p25 • Commercial value • Cash flows differ • Value of entity changes • Difference in fair value of assets • Nature & type of assets exchanged • Similar = no exchange • Dissimilar = transaction • MEASUREMENT: p24 & 26 • Fair value at date of exchange • Fair value of asset given • No fair value of asset given up • Fair value of asset receive • No fair value [both assets] • Carrying amount of asset given PPE - IAS 16

PPE [IAS 16]MAJOR INSPECTION • DEFINITION: • Required for continuation of use [License to operate] • Regular periods specified • RECOGNITION: • Meet definition criteria [asset] • Capitalised & amortised • Not a separate asset [Related to specific asset] • De-recognised at end of life PPE - IAS 16

PPE [IAS 16]DISMANTLING COST • DEFINITION: p16(c) • Future costs • Provision [IAS 37] • Legal or constructive obligation • Present obligation • RECOGNITON & MEASUREMENT: • Capitalised as part of asset cost • Estimated future costs • Present value [effective rate] • Fair value obligation at year end [Not affect asset cost] [Only provision] PPE - IAS 16

PPE [IAS 16]DISMANTLING COST • RE-ASSESMENT: [IFRIC 1] • Estimated cost • Discount rate • Changes occur • Adjust provision • Treated as change in estimate • Adjusted from beginning of year • ACCOUNTING TREATMENT: • Cost model • Adjust cost of asset • Revaluation model • Equity account • Other comprehensive income PPE - IAS 16

PPE [IAS 16]AFTER RECOGNITION • COST MODEL: p30 • Carrying amount • Subsequent adjustments • Depreciation • Impairment • REVALUATION MODEL: p31 • Fair value measured reliably • Revalued amount at valuation • Revaluation • Regularly [periodic] • Minimise material differences • Subsequent adjustment • Depreciation • Impairment PPE - IAS 16

PPE [IAS 16]REVALUATION • GROSS REPLACEMENT COST: p35 • Based on an index • Fair value of new asset • Adjust accumulated depreciation • Proportionately • Against revaluation reserve • NET REPLACEMENT COST: p35(b) • Based on market value • Fair value = current condition • 2nd hand market • Eliminated accum depreciation • Against cost of asset • Restated at “carrying amount” • Asset has no history PPE - IAS 16

PPE [IAS 16]REVALUATION • IMPLEMENTATION: p36 - 38 • All assets in a category/class • Avoid selective revaluation • Date of implementation • Beginning of the year • End of the year • TREATMENT: p39 - 40 • Other comprehensive income • Deferred tax: OCI • Closing transfer • Net amount to balance sheet PPE - IAS 16

PPE [IAS 16]REVALUATION • TREATMENT OF SURPLUS [p41] • Deferred tax is not affected • Transfer net amount • Directly to retained earnings • Transfer via SOCE • Transfer [IAS 1 p96] • Not reclassification • Realised on disposal • Transfer on derecognition • Released method • Amortised over remaining life PPE - IAS 16

PPE [IAS 16]IMPAIRMENT • DEFINITION [IAS 36 p6] • Carrying amount > recoverable amount • Recognised in P & L • Impairment [IAS 16 p40] • Initial impairment • Recognised in P & L • Subsequent impairment • Loss based on historical cost • Reversal of revaluation surplus • Limited to surplus balance • Via OCI • “True” impairment loss • Via P & L PPE - IAS 16

PROPERTY, PLANT & EQUIPMENT [IAS 16]