endstream (See 'Related links' for the solution to Example 6.). If the exchange rate fluctuates significantly, the use of an average rate is not appropriate (IAS 21.22). The example of those fixed assets include: Land Office Building Machinery Cars Computers Table Chair and others related. Examples of directly attributable costs are: (a) costs of employee benefits (as defined in IAS 19 Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment; (b) costs of site preparation; (c) initial delivery and handling costs; (d) installation and assembly costs; As per IAS 16, the cost of the asset acquired in exchange will be primarily the fair value of asset transferred Cash, therefore the cost of the acquired plant will be: AB Ltd. has recently acquired an item of plant with the following details: Repair &Maintenance contract for three years. endobj The separate components of the property are made up as follows: Required Sir David Tweedie, 16 June 2011. (See 'Related links' for the solution to Example 4.). It is the value at which asset will be presented in the statement of financial position and it is determined as Cost less Accumulated Depreciation and Accumulated Impairment Loss. xUQ;n09RIR DB.gb)^J33gY]:Je0(DU@Ws}wm{Z@xoAZ0M^y3?k798up5BzBRM (Ma_ h 4umM}&aF.%"zD,Rd_,o*J$$|Bv>a gzrJBrJLR_ IAS 16 Property, Plant and Equipment permits TWO accounting models: 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. endstream (c) For the accounting treatment of exploration and evaluation assets and mineral rights and reserves such as oil and gas and other non-regenerative resources which are covered under IFRS 6. E[-htV_ylwicESlgnZFD8P_~gy:,o%Fn:=O|R\tz>-P,UDkq $Oys1<09:}^p/(>W[0{MZf8]}. Summary. [IAS 16.55]. (200 0 / 40,000 hrs) 30,000 hrs, Charge to profit or loss on replacement, Current yr Dep. endobj The objective of this paper is to describe the accounting treatment for property, plant and equipment, in according with the IAS 16, including: timing of the recognition of assets, determination . IAS 16 applies to the accounting for property, plant and equipment, except where another standard requires or permits differing accounting treatments, for example: The standard does apply to property, plant, and equipment used to develop or maintain the last three categories of assets. Depreciation of significant parts However, if any costs do meet the recognition criteria noted above, then they should be capitalised as part of PPE. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees and estimated cost of dismantling and removing the asset and restoring the site it the payment for an item of Property, Plant and Equipment is deferred, interest at a market rate must be recognized or imputed. (h) Any depreciation charges which are recognized as part of cost of other assets. However, from the perspective of the entity that owns it, the property is investment property if it meets the definition in paragraph 5 of ias 40. (c) Depreciation rate or useful life. Installation and assembly cost. hVnF}W1Aa%%:NF-,6csfIY rvvfv8TGB( OI#yb#k$5OYLT:g2R"fZEJ$z}6N%}dR+i$N|^b|~I However, this transfer is optional and if opted by the entity then it will be applicable annually till the disposal of related asset. We introduced the key differences for lessee accounting under IAS 17 and IFRS 16, provided an example of a lessee amortization schedule and the related journal entries, and discussed the required disclosures. Therefore, the lessor treats the property as investment property in its individual financial statements. <>stream IAS 16 Topic wise Selected Opinions The Institute of Chartered Accountants of Pakistan 1 IAS 16 'PROPERTY, PLANT AND EQUIPMENT' . Thisis a particularly important area of the Financial Reporting (FR) syllabus and is also important assumed knowledge for the Strategic Business Reporting (SBR) exam. However, the entity uses the cost model for the subsequent measurement of this asset and uses IAS 16 instead of IAS 40. The transfer to retained earnings should not be made through profit or loss. Statement of profit or loss and other comprehensive income. Required In other words, it is a property held for rental purposes. QUESTION TWO: A plant and machinery was bought for $ 215,000. (b) Prepare extracts from the following financial statements for the year ended 31 March 20X2: (See 'Related links' for the solution to Example 9.). (600 0 / 25yrs) 8 yrs (192), Acc. What will be the cost of the acquired plant in the financial statements of the AB Ltd.? Where an assets carrying amount is increased as a result of a revaluation (ie a revaluation gain), this gain is normally recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. IFRS 16 offers a range of transition options. For example, abnormal amounts of wasted materials, labour or other production costs should be recognized as expenses when incurred. An entity in January of year 1 acquires land. Items of property, plant and equipment should be recognized as assets when: Assets recognized under IAS 16 Property, Plant and Equipment must be initially recognized at cost. (j) The entity should disclose the date of revaluation, involvement of the expert and the revaluation surplus in respect of the assets which are revalued in the current period. The plant is expected to have a useful life of 20 years. IAS-16: Property, Plant and Equipment with Practical Examples in Bangla: For each class of property, plant, and equipment, disclose: [IAS 16.73]: - basis fo. endobj Plant, Property and Equipment (PPE) are assets which are held for use in the production of goods, rendering of services, administrative uses, or rental purposes and are expected to be used in more than one period. 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 under IAS 8. A Practical Guide (Stephen Pete) Digital Fundamentals (Thomas L. Floyd) Commercial Law (Samantha J. Traves) . Any other cost which is necessary to bring the asset into its operating use or intended use by the management. Initial delivery and handling cost. * IAS 16 Examples and questions This is relating to FRK 201 content University University of Pretoria Course Financial accounting 201 (FRK 201) 224 Documents Academic year:2020/2021 Helpful? Paragraph 15 of IAS 40 establishes, In some cases, an entity owns property that is leased to and occupied by its parent or another subsidiary. Yucca Co paid for the machine on 25 March 20X0. Our course is led by industry experts who have years of experience in the field, providing you with the most up-to-date and relevant information. (f) The depreciation charge will commence, when the asset is available for operating use or intended use by the management. The estimated useful life is 10 This will enable the carrying amount of the asset to be known at the revaluation date, at which point the revaluation can be accounted for. The rectification cost of the error is charged to statement of profit or loss as expense. Practical tip: disposals When an asset is to be disposed of, its cash inflows will be independent of the cash inflows of other assets. The companys policy is to make a transfer to retained earnings in respect of excess depreciation. (a) That are held for use in the production, supply of goods or services, rental #(\$U>GT:%TdmDb]VdlcS& a\lE~V[#G[G ~ .Op ! But for subsequent recognition, IAS 16 gives an option to record the PPE either as per cost model. 1\@jE@jb` U6v2jHX7HI 7dHXB@c@,8>N,,Mo8N.H30hnLg@)b 8 Calculate the annual depreciation charge for the property for the year ended 31 March 20X2. Les obligations affrentes aux cots comptabiliss selon IAS 2 ou IAS 16 sont comptabilises et values selon IAS 37 Provisions, passifs ventuels et actifs ventuels. (b) No economic benefits are expected either from use or from sale of asset, For each class of property, plant and equipment, the entity is required to disclose the following: Calculate the revaluation gain and prepare the journal entry to account for the revaluation. Introduction (paras. <> At the start of January 2009 a decision was taken to replace the engine at a cost of $280 million, due to the unreliability of the old engine. ?}^wrmTJck Study Text: October 31, 2021: Depreciation should be charged to profit or loss, unless it is included in the carrying amount of another asset [IAS 16.48]. the initial estimate of the costs of dismantling and removing the asset and restoring the site on which it is located to its original condition (ie to the extent that it is recognised as a provision per IAS 37. borrowing costs in accordance with IAS 23, Cost less residual value divided by useful life. The plant and machinery is expected to produce 40M goods as follows; year Number of goods in millions 1 15 2 10 3 8 4 5 5 2 . ifrs 16 illustrative examples. If the revaluation takes place at the start of the year, then the revaluation should be accounted for immediately and depreciation should be charged in accordance with the rule above. The companys policy is to make a transfer to retained earnings in respect of excess depreciation. Calculate the amount to be included as PPE in respect of the new store and describe the impact that the above information would have on the statement of profit or loss (if any) for the year ended 31 March 20X2. revaluation. (See 'Related links' for the solution to Example 3.). However, now that the asset has been revalued the depreciable amount has changed. The Issue. Revaluation losses When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant, and equipment as a replacement if the recognition criteria are satisfied. A further situation may arise if the examiner states that the revaluation takes place mid-way through the year. Entities with property, plant and equipment stated at revalued amounts are also required to make disclosures under IFRS13 Fair Value Measurement. (a) Prepare any necessary journal entries to account for this building during the year ended 31 March 20X2. Plant & Equipment Practical Example - 2 Practical Example Solution Measurement after recognition Revaluation model Practical Example - 3 . The same applies to the operating system of a computer. If this were to happen the carrying amount would need to be found at the date of revaluation, and therefore the asset would be depreciated based on the original depreciation for the period up until revaluation. The entity has two options to account for the property, plant and equipment at reporting date as a choice of accounting policy; If an entity chooses to measure the property, plant and equipment under Cost model at reporting date, then such assets will be measured at Cost less accumulated depreciation less accumulated impairment loss. As an example, if a private company elects not to restate comparative periods, then all lessee leases would have a lease liability and right of use (ROU) asset established as of January 2022, and the comparative periods would be unchanged. The depreciation charge on the revalued asset will be different to the depreciation that would have been charged based on the historical cost of the asset. If the asset is sold on extended credit period or on deferred installment basis, then the disposal proceeds will be taken as cash price equivalent and any excess over the cash price will be treated as Interest Income which will be recognized over the period of credit.