IAS 16 Property, Plant & Equipment establishes principles for recognizing 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.
After recognition, an entity chooses either the cost model or the revaluation model as its accounting policy and applies that policy to an entire class of Property, Plant & Equipment:
- Under the cost model, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.
- Under the revaluation model, an item of property, plant and equipment whose fair value can be measured reliably is carried at a revalued amount, which is its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations must be made regularly and kept current. Revaluation increases are recognised in other comprehensive income and accumulated in equity, unless they reverse a previous revaluation decrease. Revaluation decreases are recognised in profit or loss unless they reverse a previous revaluation increase.
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The depreciation method used reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. To determine whether an item of property, plant and equipment is impaired, an entity applies IAS 36 Impairment of Assets.
IAS 16 Property, Plant & Equipment is Copyright: IFRS Foundation
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