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Fixed Assets and Borrowing
Costs under Ind-As
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Costs under Ind-As
Ind-AS 16 : Property Plant & Equipment
Appendix A (IFRIC 1) :
Applicable Pronouncements
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Appendix A (IFRIC 1) : Changes in Existing De-commissioning, Restoration and Similar Liabilities
How it Differs from I GAAPRates of Depreciation – method & useful life
Revaluation - regularity & treatment
Replacement cost & major inspection cost
Component Accounting
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Component Accounting
Decommissioning Cost
Compensation on Impairment.
DEPRECIATION,
MEASUREMENT
AFTER
RECOGNITION
RECOGNITION
INITIAL &
SUBSEQUENT
COSTS
MEASUREMENT
AT RECOGNITION
DEPRECIATION,
DERCOGNITION
,IMPAIRMENTS
& DISCLOSURES
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SCOPE Ind-AS 16
YES
•Applied to accounting for all property, plant, and equipment unless another Standard permits otherwise ,.e.g., IndAS 17 Lease
•Property, plant, and equipment classified as
NO•Property, plant, and equipment classified as held for sale in accordance with Ind-As 105
NO• Bilogical Assets INDAS 41
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PPE – Tangible Items
Held for Use in :
- the Production or Supply of Goods
- for Rental to others
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- for Rental to others
- for administrative purposes AND
Are Expected to be used during more than one Period – Please note the key word is “period” and NOT Year.
Definitions
Cost
Useful Life
Residual Value
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Definitions
Depreciable Amount
Depreciation
Fair Value
Initial Recognition – As per Framework
Recognise
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Its Probable that FEB will Flow into
Entity
The Cost of Item Can be Measured
Reliably &
Purchase price + import duties + non-refundable purchase taxes, Minus trade discounts and
rebates.
Same as per I GAAP
Elements of CostMeasure
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Initial Estimate of Cost of
Dismantling and Removing.
Directly Attributable Costs + Interest Ind
AS 23
Initial Costs
Subsequent Costs
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To Acquire or construct
To add to , replace part of or service it.
Cost of Major inspection –overhauling is also capitalised
Construction – Development – Acquisition Stage
Asset in location – condition necessary for it to be capable of operated in the manner as
Cut Off
Cost – Interest are Capitalised
Stop Capitalisation
Cost- Interest NOT Capitalised
Start Depreciating
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– Acquisition Stage operated in the manner as intended by the Management
Directly Attributable Cost
Employee Benefit Costs
Costs of site preparation;
Initial delivery and handling costs;
Installation and assembly costs;
Cost of Testing , Professional Fees
De-commissioning Cost
Opening a new facility;
Introducing a new product or service
Conducting business in a new location or with a new class of customer
Administration and other general overheads.
Whether to Capitalise ?
Spare parts and Servicing Equipment
Expensed Capitalised
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Expensed Out
Capitalised
Usually carried as Inventory and expensed out as consumed
Spares which can be exclusively used only in connection with particular equipment are capitalised
Major Spares and Standby equipment are also capitalised
Before -or - During
Construction or Development
Yes – If required
Treatment of Incidental Operations !
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Development
Should be Capitalised or Not ?
No – If Not Required
Decommissioning Cost –Appendix A (IFRIC 1)
Includes Estimated Cost of Dismantling & Removing assets & restoring Sites
Provided
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Only when there is a corresponding obligation recognisedas a provisions under Ind-AS 37, provisions contingentliabilities and contingent assets.
De-Commissioning Cost - Estimate
AmountPeriodDiscount
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AmountPeriodDiscount Rate
To Arrive at Present Value –For Initial Capitalisation
Initial Measurement - Cost
Cash Equivalent Price
If Payment is Deferred Total Price – Cash
Equivalent = Interest
Normally
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Interest is capitalised IAS 23 Unless
Exception to initial recognition At cost
Finance Lease
Government Grant
Exchange for Non-monetary Assets
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Grant Assets
Yes
FV of Asset of Asset Given up or Received Measure Reliably
No
Carrying Amount of Assets Given up
Exchange with Non Monetary Assets
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Yes
FV of Assets Given up
Unless FV of Assets Received is more clearly Evident
of Assets Given up
Same as per I GAAP
Subsequent Measurements
Recognise De-
Carrying Amount of Replaced parts are De-recognised
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Recognise De-recognise
Provided recognition Criteria is met
Measurement After Recognition
Cost ModelRevaluation
Model
Entire Class
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Less Less
Accumulated
Depreciation Any
Accumulated
Impairment
Accumulated
Depreciation Any
Subsequent
Accumulated
Impairment
How to determine Fair Value?
• Land & Building:- From market based
evidence by Appraisal
by professionally
Qualified valuers.
• Plant & Equipment
Qualified valuers.
By Appraisal.
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If No Market based evidence - need to estimateFair value based on “depreciated - replacement cost”approach
Treatment of Accumulated Depreciation on Revaluation
RestatedProportionately
Eliminated Against thegross carrying amount
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Proportionatelyso that the carryingamount Of Assets afterrevaluation equals Itsrevalued amount.IndAS16.35a
gross carrying amountof the asset Netamount is restated tothe revalued amount ofan assets. IndAS 16 .35b
Same as per I GAAP
Revaluation -Increase in Carrying Value Ind-AS16.39
Earlier Decrease in Revaluation
Increase
No
Assets Accounts Dr.
To Revaluation Reserve Cr
TAX
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Earlier Decrease in Revaluation Reserve
Revaluation Reserve
Yes
Profit Or Loss Assets Accounts Dr.
To Statement of Profit & Loss Cr
If Early decrease in Valuation – Instead of Crediting RR – credit goes to
Statement of Profit & Loss
Revaluation -Decrease in Carrying Value.IndAS 16.40
Earlier Increase in Profit or Loss
Decrease
No
Dr Statement of Profit Or Loss
Cr Assets Account
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Earlier Increase in Revaluation Reserve
Profit or Loss Accounts
Yes
Adjust against Revaluation Reserve
Dr. Revaluation Reserve A/c
Cr. Assets
Recognised in Revaluation Reserve Account to the tune of credit Balance in RR – Else in Statement of Profit & Loss
Treatment of Revaluation Reserve
1.Yearly from Revaluation Reserve directly to Retained earnings or
2. When the asset is derecognised
If an entity make such transfers , it
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If an entity make such transfers , it should be net of tax.
Not treated as Reclassification adjustment. Such transfer is NOT routed through profit & loss account.
Depreciation
Systematic Basis
Begins –Assets ready Components
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Depreciation Assets ready to Use
Ceases –earlier of IndAS 105 or De-recognition
Components
Depreciable Amount
Cost or Revalued Amount
Residual Value
Useful Life Depreciable Amount of
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Useful Life (Years )
Depreciable Amount
Amount of Depreciation
Standard mandates yearly review of useful life, residual value and method of depreciation. Changes wherein are regarded as changes in estimate , hence applied prospectively.
Depreciation
Allocated on a systematic basis over its useful life.
Year-end review of
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Year-end review of
MethodResidual value
Useful Life
Treated as Change in Estimate
Ind AS16.51Ind-AS16.61
Depreciation Methods
Straight Line Written
Down Value Units of Production
Not Exhaustive List
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Straight Line Method.
Written Down Value Method.
Units of Production Method.
Land & Building are separable assets and there to be accounted for separately even though they are acquired together.
Depreciation not to be charged to Profit and Loss account.
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Depreciation not to P & L
•When it is included in thecarrying amount of anotherassets (e.g. conversion ofinventory) PPE used for
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inventory) PPE used fordevelopment may be includedin the cost of Intangible assetsas per Ind-AS 38.
Depreciation “Zero”
When Residual Value => CA
No production – When Unit of Production Method followed
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Depreciation “Zero” Method followed
Ind-AS 105
Asset is De-Recognised
When Asset is Disposed off Or
When no Future Economic Benefits are Expected
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Gain or Losses Included in SOCI &
Revaluation Surplus transferred to Retained earnings
Asset is De-Recognised
Disposal can take place in many ways :-
�Sale - Ind AS 18 Revenue will be Applicable
�Lease Ind AS 17 Sale & Leaseback Applicable
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�Lease Ind AS 17 Sale & Leaseback Applicable
�Consideration on Disposal to be Recognized initially at Fair value.
Impact Analysis on First Time Adoption
Cherry – Pick Model Permitted.
Component Accounting must – voluntary
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Component Accounting must – voluntary exemption in Appendix D-5 is specifically only for replacing cost by revalued amount.
Class Land Bldg Plant
Items 20 25 100
Post IFRS Revaluation Cost Cost
On Transition 10 20 70
Can be Cherry Pick
Challenges
Land & Building Accounted for Separately even though acquired together
Componentization
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Componentization
Year end review of Useful life, residual value and method of depreciation.
Thank You
&
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All the Best
&
