IAS 16 Property, Plant and Equipment
IAS 20 Government grants
IAS 23 Borrowing Costs
IAS 36 Impairment of Assets
IAS 38 Intangible Assets
IAS 40 Investment Property
IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations
IAS 16 PROPERTY, PLANT AND EQUIPMENT
In this context, recognition means incorporation of the item in the entity's accounts, in this case as a non-current asset. For recognition of property, plant and equipment depends on the following two criteria:
a. It is probable that future economic benefits associated with the asset will flow to the entity
b. The cost of the asset can be measured reliably
These recognition criteria also apply to the cost incurred initially as well as for recognising subsequent expenditure.
Major components or spare parts, should be recognised as property, plant and equipment.
Once an item of property, plant and equipment qualifies for recognition as an asset, it will initially be measured at cost.
Components of cost
The standard lists of the components of the cost of an item of property, plant and equipment.
Capitalise all costs to bring an asset to its present location and condition for its intended use.
1. Purchase price of an asset less any trade discount
2. Directly attributable costs such as:
-cost of site preparation
-initial delivery and handling costs
-installation and testing costs
3. The initial estimate of dismantling and removing the asset and restoring the site to its original condition
4. Borrowing costs in accordance with IAS 23, Borrowing Costs
IAS 16 allows to choose between two models.
-Cost model (carry an asset at cost less accumulated depreciation)
-Revaluation model (carry an asset at its fair value at revaluation date less subsequent depreciation.
Note: IAS 16 specifies that the revaluation model is available only if the fair value of the asset can be measured reliably.Revaluation Model
The market value of the land and buildings usually represents fair value. Such valuations are carried out by professionally qualified valuers.
In the case of plant and equipment, fair value can also be taken as market value. If market value is not available, depreciated replacement cost should be used.
Example: Revaluation gain
Carrying value of non-current asset at revaluation date X
Valuation of non-current asset X
Difference = gain or loss on revaluation X
The initial revaluation
Revaluation gains and losses
A gain on revaluation is always recognised in equity under revaluation reserve.
A revaluation loss (impairment) should be charged against any related revaluation surplus to the extent that the decrease does not exceed the amount held in the revaluation reserve in respect of the same asset. Any additional loss must be charged as an expense in the income statement.
To be continued.......................................................