About

IAS 16 establishes principles for recognising property, plant and equipment as assets, measuring their carrying amounts, and measuring the depreciation charges and impairment losses to be recognised in relation to them. Property, plant and equipment are tangible items that:

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

Property, plant and equipment includes bearer plants related to agricultural activity.

The cost of an item of property, plant and equipment is recognised as an asset if, and only if:

  • it is probable that future economic benefits associated with the item will flow to the entity; and
  • the cost of the item can be measured reliably.

An item of property, plant and equipment is initially measured at its cost. Cost includes:

  • its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates;
  • any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management; and
  • the estimated costs of dismantling and removing the item and restoring the site on which it is located, unless those costs relate to inventories produced during that period.

What you should know

  • Know and apply the definitions.
  • What is property, plant and equipment.
  • What are the recognition criteria for initial recognition of property, plant and equipment
  • Know the alternative ways in which property, plant and equipment can be measured subsequent to initial recognition
  • How to measure property, plant and equipment on initial recognition
  • Calculate the following amounts:
    • cost price of assets purchased, exchanged or constructed;
    • depreciation;
    • depreciable amount;
    • residual value;
    • carrying amount; and
    • revaluation surplus/deficit and revalued amount.
  • Account for all the above-mentioned items.
  • Know the cost model and the revaluation model
  • The factors to consider when choosing which measurement model to apply
  • Present and disclose property, plant and equipment in the annual financial statements.
  • Account for derecognition