IAS – 16 (Property, plant & equipment):

Definition: Tangible assets held for more than 12 months for use in a business ·         Recognition: *   Probable future economic benefits will flow to the entity *  Cost of the asset can be measured reliably ·         Initial recognition: at cost, which includes – *  All capital costs involved to bring the asset in working conditions *  E.g. site preparation cost, installation & delivery cost, borrowing cost, dismantling cost       Subsequent expenditure: *  Can only be capitalized if total economic benefits increase above those expected on original recognition *  Otherwise, it should be recognized in SOPL (i.e. I/S) as it only maintains the economic benefit originally expected Depreciation: *  Systematic allocation of an asset’s cost over its useful life *  It should be charged from the date the asset is available for use *  Straight line method = (Cost – residual value)/ useful life *  Reducing balance method = (Net book value X certain %) Measurement: *  Cost Model = (Cost – Accumulated Depreciation) – Impairment loss *  Revaluation model: *  Revaluation at start of year: *  NBV at year end = (Revalued amount – Depreciation based on revalued amount over its remaining life) *  Revaluation increase/decrease = Revalued amount – Opening NBV *  Revaluation at end of year: *  NBV at year end = Revalued amount *  Revaluation increase/decrease = Revalued amount – Closing NBV  Journal of revaluation:   Non-current Asset (New value – Cost)                        DR    Accumulated Depreciation (up to date)                       DR   Revaluation reserve (OCI)                                                CR                                                        *  Excess depreciation on revaluation gain transferred to R/E:   Revaluation reserve                                                     DR   Retained earnings                                                             CR                                            *  Revision of useful lives:   Depreciation = NBV at date of change/ Revised life *  Addition of NCA during the year:   Depreciation = (NBV + Addition)/ Remaining life *  Revision of residual value: *  Depreciation =(NBV up to revision - New residual value)/ Remaining life   *  Journal of disposal:       Cash/ bank (sales proceeds) DR   Accumulated Depreciation (up to date) DR   * Loss on disposal (B)   NCA (at cost) DR   CR   * Gain on disposal (B)   CR