IAS 16 - PROPERTY, PLANT AND EQUIPMENT (PPE)

 

IAS 16 - PROPERTY, PLANT AND EQUIPMENT (PPE)

PPE are tangible assets that are held for use  

• in production or supply of goods or services
• for rental to others
• for administrative purposes and
•  are expected to be used during more than one period

 

Recognition criteria

·         It is probable that future economic benefits associated with the item will flow to the entity.

·         The cost of the item can be measured reliably.

 

Initial Measurement

PPE is initially measured at cost.

COST = PURCHASE PRICE + DIRECTLY ATTRIBUTABLE COST + REMOVAL COST

 

PURCHASE PRICE	DIRECTLY ATTRIBUTABLE COST	REMOVAL/ DISMANTLING COST
ADD: import duties, non-refundable purchase taxes LESS: Trade discount and rebates	- Cost of site preparation - Professional fees - Initial delivery and handling - Installation cost - Assembly cost	The present value of these costs should be capitalized, with an equivalent liability set up. DCF = 1/(1 + r)n

 

Subsequent Measurement

1. COST Model

Carrying Value - Accumulated Depreciation - Accumulated Impairment Loss

 

2. REVALUATION Model

Fair Value - Subsequent Accumulated Depreciation - Subsequent Accumulated Impairment Loss

Subsequent measurement of Depreciation = Revalued Amount

                                                                               Remaining Useful life

 

TREATMENT

Change in Carrying Value	Where
Increase	OCI (heading Revaluation Surplus)	P&L (if reverses previous revaluation decrease of the same amount)
Decrease	P&L	OCI (if reduced previously recognised revaluation surplus)

 

Note:

1. When the question demands that transfer to realised profit in respect of excess depreciation is to be recognised. Treat the excess depreciation as transfer in Statement of Changes in Equity by capitalising it to retained earnings and deducting it from the revaluation surplus.

Excess Depreciation = New Depreciation - Old Depreciation

Statement of Changes in Equity

                  Retained Earnings            Revaluation Surplus

OCI                                                                    XXX

Transfer                XX                                      (XX)

Balance c/d        XXX                                     XXX

 

2. Take account of revaluation surplus for Land BUT DON'T DEPRECIATE LAND.

 

Derecognition Criteria

·         On Disposal

·         No future economic benefits are expected from its use or disposal

 

DISPOSAL GAIN/ LOSS = NET DISPOSAL/ SALE PROCEEDS - CARRYING AMOUNT

 

NOTE:

1. DISPOSAL should be accounted for in the statement of Profit or Loss of the period in which the disposal occurs.

2. Any balance on the revaluation surplus relating to this asset should now be transferred to retained earnings in Statement of Changes in Equity.

Example:

Assuming Balance b/d for Retained Earnings is GH₵20 and Revaluation of GH₵50 relates to an asset disposed off. The GH₵50 will be transferred to Retained Earnings:

 

Statement of Changes in Equity

                  Retained Earnings            Revaluation Surplus

Balance B/d         20                                         50

Transfer               50                                        (50)

Balance c/d        70                                           -

 

DISCLOSURE

The financial statement shall disclose for each class of PPE:

1. The measurement bases used for determining the gross carrying amount.

2. The depreciation method used

3. The useful lives or the depreciation rate used

4. The gross carrying amount and the accumulated depreciation at the beginning and end of the period.

 

PART 1 VIDEO ON IAS 16

PART 2 VIDEO ON IAS 16