international accounting standards by qazimusman82

8/9/2019 International Accounting Standards by qazimusman82

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8/10/2010 1International Accounting Standards


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16.PROPERTY, PLANT AND EQUIPMENT



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Presented To: Sir Munawar Hameed

Presented By: Qazi Mohammad Osman

MBA 54710



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The objective of IAS 16 is to prescribe the

accounting treatment for property, plant, and

equipment. The principal issues are therecognition of assets, the determination of their

carrying amounts, and the depreciation charges

and impairment losses to be recognized in

relation to them.



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IAS 16 does not apply to:

Assets classified as held for sale in accordancewith (IFRS 5)

Exploration and evaluation assets (IFRS 6)

Biological assets related to agricultural activity(IAS 41) or

Mineral rights and mineral reserves such as oil,natural gas and similar non-regenerativeresources.



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IFRS-5: Non-current assets held for sale anddiscontinued operations.

IFRS-6: Exploration for and evaluation of mineralresources.

IAS-41:Agriculture.

However, this Standard applies to property,

plant and equipment used to develop or

maintain the assets, described in 3and 4.



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Items of property, plant, and equipment should

be recognized as assets when it is probable that:

It is probable that the future economic benefitsassociated with the asset will flow to the entity.

The cost of the asset can be measured reliably.



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This recognition principle is applied to allproperty, plant, and equipment costs at the time

they are incurred. These costs include costsincurred initially to acquire or construct an itemof property, plant and equipment and costsincurred subsequently to add to, replace part of,or service it.IAS 16 recognizes that parts of some items ofproperty, plant, and equipment may requirereplacement at regular intervals. The carryingamount of an item of property, plant, and equipment

will include the cost of replacing the part of such anitem when that cost is incurred if the recognitioncriteria (future benefits and measurement reliability)are met.



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An item of property, plant and equipment should initiallybe recorded at cost. Cost includes all costs necessary to bringthe asset to working condition for its intended use. This wouldinclude not only its original purchase price but also costs of site

preparation, delivery and handling, installation, relatedprofessional fees for architects and engineers, and the estimatedcost of dismantling and removing the asset and restoring thesite. If an asset is acquired in exchange for another asset, the cost will

be measured at the fair value unless: the exchange transaction lacks commercial substance or The fair value of neither the asset received nor the asset given up is

reliably measurable.



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IAS 16 permits two accounting models:

Cost Model. The asset is carried at cost lessaccumulated depreciation and impairment.

Revaluation Model. The asset is carried at a

revalued amount, being its fair value at the date ofrevaluation less subsequent depreciation andimpairment, provided that fair value can bemeasured reliably.



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Under the revaluation model, revaluations should

be carried out regularly, so that the carrying

amount of an asset does not differ materially from

its fair value at the balance sheet date. If an item is

revalued, the entire class of assets to which that

asset belongs should be revalued. Revalued assets

are depreciated in the same way as under the cost

model.



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Decrease arising as a result of a revaluation

should be recognized as an expense to the extent

that it exceeds any amount previously credited tothe revaluation surplus relating to the same asset.

When a revalued asset is disposed of, anyrevaluation surplus may be transferred directly to

retained earnings, or it may be left in equity

under the heading revaluation surplus. Thetransfer to retained earnings should not be made

through the income statement.



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The depreciable amount (cost less residual value)

should be allocated on a systematic basis over the

asset's useful life. The residual value and the

useful life of an asset should be reviewed at least

at each financial year-end and, if expectations

differ from previous estimates, any change is

accounted for prospectively as a change in

estimate.



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The depreciation method used should reflect the

pattern in which the asset's economic benefits are

consumed by the entity. Depreciation should becharged to the income statement, unless it is

included in the carrying amount of another asset.

Depreciation begins when the asset is available

for use and continues until the asset is

derecognized, even if it is idle.



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An asset should be removed from the balance

sheet on disposal or when it is withdrawn from

use and no future economic benefits are expected

from its disposal. The gain or loss on disposal is

the difference between the proceeds and the

carrying amount and should be recognized in the

income statement.



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For each class of property, plant, and equipment,

disclose:

basis for measuring carrying amount

depreciation methods used

useful lives or depreciation rates

gross carrying amount and accumulated

depreciation and impairment losses reconciliation of the carrying amount at the

beginning and the end of the period, showing:



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1. additions

2. disposals

3. acquisitions through business combinations4. revaluation increases or decreases

5. impairment losses

6. reversals of impairment losses7. depreciation

8. net foreign exchange differences on translation

9. other movements

10. restrictions on title

11. expenditures to construct property, plant, andequipment during the period



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If property, plant, and equipment is stated at

revalued amounts, certain additional disclosures

are required: the effective date of the revaluation

whether an independent value was involved

the methods and significant assumptions usedin estimating fair values.

the extent to which fair values weredetermined directly by reference to observable

prices in an active market or recent markettransactions on arm's length terms or wereestimated using other valuation techniques.



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