IAS 16 -Property, Plant & Equipment (PPE)
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Transcript of IAS 16 -Property, Plant & Equipment (PPE)
IAS 16
Property, Plant & Equipment (PPE)
Presentation on…
Presented by …Presented by … M.K.Jahid Shuvo Saidur Rahman Md. Kabir Hasan Hasan Shah Ripon Md. Ruhul Amin Masum Rana
Dept. of Accounting & Info. SystemsJahangirnagar University
Savar, Dhaka
Objectives Scope of the standard Definitions regarding PPE Recognition of PPE Subsequent costs Measurement after recognition- Cost model & Revaluation model Depreciation procedure Impairment Derecognition Presentation & Disclosure Summary
Objectives:
Timing of the recognition of assets
Determination of assets carrying amounts using both the cost model
and the revaluation model
Depreciation charges and impairment losses to be recognized
Disclosure requirements
Scope of the standard:
This standard applies in the accounting for elements of tangible fixed
assets, except when another International Accounting Standard requires
or permits a different accounting treatment.
Scope of the standard:
This standard does not apply to-
Property ,plant & equipment that is for sale
Biological assets related to agricultural activity
Mineral rights and mineral reserves
Definition : Property, plant & Equipment (PPE)Definition : Property, plant & Equipment (PPE)
Property Plant and Equipment defines Property Plant and Equipment as tangible assets that-
1) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
2) are expected to be utilized in more than one period.
Other important definitions:
Cost:
Cost is the amount of cash or cash equivalent paid to acquire an asset at the time of its acquisition and construction.
Fair Value:
Fair value represents the present market price of an asset.
Other important definitions:
Carrying amount:
Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation or losses.
Formula:
Carrying amount = Acquisition cost – Accumulated depreciation
Recognition : Property, Plant & Equipment (PPE) Recognition : Property, Plant & Equipment (PPE)
An item of Property, Plant & Equipment that qualifies for recognition as an asset shall be measured at its cost.
Elements of Cost:
Its purchase price and duties paid.
Directly attributable costs.
Initial estimate of the cost of dismantling and removing the item and restoring the
site.
Materials, labor and other inputs for self constructed assets.
The cost of Property, Plant & Equipment shall be recognized as an asset if, and only if:
a) It is probable that future economic benefits associated with the item will flow to the entity; and
b) The cost of the item can be measured reliably.
Costs NEVER to be Capitalized
Costs of opening new facility;
Costs of introducing new product or service;
Costs of conducting business in new location or with new class of customer;
Administration and other general overhead costs;
Costs incurred in using or redeploying an item;
Amounts related to certain incidental operations.
Additional costs are incurred after the asset becomes operational is called subsequent costs.
Example of this cost includes-
Expense day-to-day servicing cost.
Capitalize replacement or renewal components and major inspection costs.
Subsequent MeasurementSubsequent Measurement
Revaluation
Depreciate revalued amount over useful life
Depreciate costover useful life
Revaluation Model Cost Model
Cost Model :
Carrying amount is-
At cost Less
any accumulated Depreciation less
any accumulated impairment losses
Revaluation Model : Carrying amount is-
Fair value less
subsequent accumulated depreciation less
subsequent accumulated impairment losses
Depreciation :Depreciation :
Depreciation is the systematic allocation of the depreciable amount of an asset over it’s useful life.
Residual value :
Residual Value of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated cost of disposal.
Depreciable amount is the cost of an asset or the amount that has replaced it, less its residual value.
Depreciable amount :
Depreciation methods:
1.Straight line method
2. Sum of the years digits method
3. Double declining balance method
4. Units of production method
Straight line depreciation method :
Assumes uniform consumption pattern of economic benefits The depreciation expense:
Depreciable amount
Estimated useful life
= Depreciation expense
* Depreciable amount = Cost – Salvage Value
Sum-of-the-Years’-Digits method
Each fraction uses the sum of the years as a denominator (5 + 4 + 3 + 2 + 1 = 15). The numerator is the number of years of estimated life remaining as of the beginning of the year.
Alternate sum-of-the-years’ calculation,n(n+1)
2==
5(5+1)
2= 15
Double declining method :
Double declining depreciation rate is a fixed percentage which is
equal to double of the straight line rate.
If the straight line rate is 20% then twice of the straight line rate
would be 40% that is double declining rate.
Units of production method :
Units of production method measures the amount of depreciation dividing the total estimated units by total estimated hours.
Here the total estimated hours is identified by subtracting salvage value from cost multiplying specific working hours.
(Cost – Salvage value) X Hours this year
Total estimated hours= Depreciation charge
Impairment : Definition
An impairment is the amount by which the carrying amount of an asset exceeds its recoverable amount. Recoverable amount is the higher of an asset’s net selling price and its value in use.
When impairment occurs-
Significant decrease in the market value of an asset
Significant changes in the usage of an asset
The significant adverse effects of climate change in the value of an asset
Asset exchange transactions:
Assets are exchanged for two reasons-
1. Acquired asset will be measured at fair value
2. Given up asset will be measured at carrying amount
Acquired asset will be measured at fair value if:
Exchange has commercial substance.
Fair value of the asset acquired can be measured reliably.
Acquired asset will be measured at carrying amount of the asset given up if:
Exchange lacks commercial substance.
Fair value of the asset acquired can not be measured reliably.
Derecognition:
When no future benefits expected from use or disposal-
Difference between carrying amount and net disposal proceeds recognised as gain/loss in profit or loss.
Gains not classified as revenue
Consideration receivable measured at fair value
Presentation and disclosure:
Measurement basis-
Depreciation methods
Useful lives or depreciation rates
Gross carrying amount and accumulated depreciation at beginning and end of period
Reconciliation at beginning and end of period showing:
Comparative information required
Residual values
Estimated cost of removing or restoring items
Useful lives
Depreciation methods
Disclosure of the nature & effectiveness of change in Accounting estimate with respect to-
At the revaluation of PPE , the followings must be disclosed:
Effective date of revaluation
Independent valuator involvement
Methods and significant assumptions applied
Carrying amount should be recognized under cost model
Revaluation surplus
Summary: Clear concept view of IAS 16 which is about PPE. Helps us to know about different constitutional terms of accountancy
Provides help to prepare financial statement which is internationally granted
Removes confusions that arises among the accountants about different accounting terms and conditions.
Measures properly the financial position of the organization.
It helps to implement the rules and regulations in the practical field
Thanks to all…
Any Questions…