PAS 16

• PAS 16 prescribes the accounting treatment for Property, Plant, and Equipment (PPE), addressing recognition as assets, measurement of carrying amount, and recognition of depreciation charges
• PAS 16 applies to all items of PPE except those classified as held for sale, biological assets other than bearer plants, the recognition and measurement of exploration and evaluation assets, and mineral rights and mineral reserves
• PPE are tangible assets used in business which are long-term in nature, examples include land used in business, buildings, equipment, furniture and fixture
• Recognition of PPE occurs when 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
• Initial measurement of PPE includes costs like purchase price, direct costs of bringing the asset to the location necessary for use, and initial estimates of dismantlement, removal, and site restoration costs
• Direct costs of PPE include employee benefits from construction, site preparation, delivery and handling costs, installation and assembly costs, testing costs, and professional fees
• Cost of PPE is measured at the cash price equivalent at the acquisition date, and if payment is deferred beyond normal credit terms, the difference is recognized as interest over the credit period
• Depreciation of PPE starts when the asset is available for use as intended by management and stops when derecognized, classified as held for sale, or fully depreciated
• Depreciation methods under PAS 16 include Straight-line Method, Diminishing Balance Method, and Units of Production Method
• Straight-line method depreciation is recognized evenly over the useful life of the asset, computed as Depreciable Amount divided by Useful life
• Under the revaluation model, a PPE is subsequently measured at a revalued amount, being its fair value at the date of revaluation less any accumulated depreciation and accumulated impairment losses
• An increase or decrease in the carrying amount of a PPE resulting from revaluation is recognized in Other Comprehensive Income and accumulated in Equity under the “Revaluation Surplus” account
• Derecognition of PPE occurs when it is disposed of or when no future economic benefits are expected from the asset’s use or disposal, with any difference between the carrying amount and net disposal proceeds recognized as gain or loss
• General disclosures for PPE include the measurement bases used, depreciation methods, useful lives or depreciation rates, gross carrying amount, accumulated depreciation at the beginning and end of the period, and a reconciliation of the carrying amount showing additions, disposals, and other changes
• Additional disclosures for PPE may include restrictions on title, PPE pledged as security, expenditure to construct PPE, and contractual commitments for acquisition
• Encouraged disclosures for PPE include carrying amount of temporarily idle PPE, gross carrying amount of fully depreciated PPE still in use, carrying amount of PPE retired from active use, and fair value of PPE when materially different from the carrying amount