FINAL PROJECT(IAS 16 property and plant)

IAS 16 Property, Plant and Equipment

1.    This Standard is to prescribe the accounting treatment for property, plant and equipment hence users of the financial statements can use information about an entity’s investment in its property, plant and equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges are to be recognized.

·         Property, plant and equipment are tangible items that:

(a)  Are held for use in the production or supply of goods or services, for rental to others, or for administrative Purposes.

(b)  Are expected to be used during more than one period.

·         The cost of an item of property, plant and equipment shall be recognized as an asset;

(a)  It is probable future economic benefits associated with the item will flow to the entity.

(b)  The cost of the item can be measured reliably.

·         The cost of an item of property, plant and equipment comprises;

(a)  Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade Discounts and rebates.

(b)  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.

(c)  The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

·         Measurement after recognition;

2.    An entity shall choose either the cost model or the revaluation model as its accounting policy and shall apply that policy to an entire class of property, plant and equipment.

·         Cost model:

3.    After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

·         Revaluation model:

4.    After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.  Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.

·         If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in profit or loss. However, the decrease shall be recognized in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset.

·         Depreciation  is the systematic allocation of the depreciable amount of an asset over its useful life. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.  The depreciation charge for each period shall be recognized in profit or loss unless it is included in the carrying amount of another asset.  The depreciation method used shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.

·         The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.