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Ind AS 16 PPE

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40 views9 pages

Ind AS 16 PPE

Uploaded by

rockybalboadidit
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Property Plant and Equipment

Ind AS - 16

CA P R Ramesh
23rd January 2020
Definition
Property, Plant and Equipment (‘PPE’)

Spare parts, stand-by equipment are recognised as PPE when they meet the above definition of PPE
Recognition and Measurement

Property, Plant &


Equipment shall be Criteria apply to all costs
recognized as an asset when incurred,
when: including

Future economic Initial acquisition Property, Plant


benefits are or construction
probable costs Equipment is
measured initially
at cost.
Cost can be
Subsequent Costs
measured reliably
Elements of Cost
All costs involved in bringing the asset to the present location and condition necessary
for it to be capable of operating in the manner intended by management.

Cost Elements

Purchase Costs Directly attributable Costs Other Costs


• Purchase Costs •Cost of Employee benefits • Initial estimates of
• Import Duties/ Non •Cost of Site Preparation dismantling costs.
Refundable Taxes •Initial delivery and handling Costs • Initial estimates of site
• Deduct trade •Transport handling Charges restoration costs
discounts/ rebates •Installation and assembly costs • Major inspection
•Cost of testing costs
•Professional Fees • Cost of
Replacements

Cost Element - Exclusion


 Costs of Opening a new facility  Administrative and other general
 Costs of introducing a new product or service or conducting business in overheads
a new location;
Exchange of Assets
Measure costs at Fair value,
unless:
If PPE is acquired in
- The exchange transaction has
exchange for other non no commercial substances **,
monetary asset or for a
combination of monetary or
asset - Fair value of neither the asset
received nor given up can be
reliably measured

If the acquired item is not measured at fair value, its cost is measured
at the carrying amount of the asset given up.

** Commercial substance can be defined as a transaction or an event that causes a change in the cash flows of
the entity.
Subsequent Expenditure
 Replacements and overhauls should be capitalised if they lead to an enhancement in
performance

 All other subsequent expenditure should be recognised as an expense in the period in


which it is incurred

 Day-to-day servicing costs are revenue expenditure

ABC Limited installs a new production process in its factory at a cost of INR 500,000. This enables a reduction in
operating costs (as assessed when the original plant was installed) of INR 100,000 per year for at least for the next 15
years.

Requirement
How should the expenditure be treated?

Solution:
It should be capitalised and added to the original cost of the plant as it results in an enhancement of the economic benefits.
Subsequent Measurement
 Can choose Cost Model or Revaluation Model as its accounting policy
• Cost model - property, plant, and equipment is carried = Cost (-) Any
accumulated depreciation (-) any accumulated impairment losses.

• Revaluation model - property, plant, and equipment is carried = a


revalued amount, being its fair value (-) any subsequent accumulated
depreciation (-) Subsequent accumulated impairment losses.

 Adopted option as accounting policy will apply to entire class of PPE

 Revaluation shall be done with sufficient regularity** to ensure that there is no significant
gap between FV and Carrying Value
** Sufficient regularity does not specify the time to initiate revaluation exercise, it is a Management decision
Revaluation
Upward Revaluation Downward Revaluation
First Revaluation Recognize in Other Decrease is recognized in Profit/Loss
Comprehensive Income &
accumulated in Equity under
revaluation surplus

Subsequent
Revaluation

Upward Downward Upward Downward

Recognize in OCI & Recognized in OCI to Credited in P/L to the extent it Recognized
accumulated in Equity the extent of any credit reverses a revaluation decrease in
under revaluation balance in Revaluation of the same asset previously Profit/Loss
surplus Surplus & balance recognised in P/L AND the
debited in Profit/Loss balance is recognized in OCI &
accumulated in Rev Surplus

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