Property, Plant And Equipment Essay Example for Free

Property, Plant And Equipment EssayItems of property, plant, and equipment should be recognised as additions when it is probable that IAS 16.7 it is probable that the future day economic benefits associated with the addition will flow to the entity, and the address of the asset can be measured reliably.This scholarship principle is applied to all property, plant, and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, flip factor of, or service it. IAS 16 does not prescribe the unit of measure for acquaintance what constitutes an item of property, plant, and equipment. IAS 16.9 Note, however, that if the cost model is utilize (see below) 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 must be depreciated separately. IAS 16.43 IAS 16 recognises th at parts of some items of property, plant, and equipment may require renewal at regular intervals.The carrying amount of an item of property, plant, and equipment will include the cost of replacing thepart of such an item when that cost is incurred if the recognition criteria (future benefits and measurement reliability) are met. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition provisions of IAS 16.67-72. IAS 16.13 Also, continued operation of an item of property, plant, and equipment (for example, an aircraft) may require regular major(ip) critical reviews for faults regardless of whether parts of the item are replaced.When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant, and equipment as a replacement if the recognition criteria are satisfied. If requi commit, the estimated cost of a future similar inspection may be used as an indication of what the cost of the existing inspection component was when the item was acquired or constructed. IAS 16.14Initial MeasurementAn item of property, plant and equipment should initially be recorded at cost. IAS 16.15 Cost includes all costs necessary to bring the asset to working condition for its int devastationed use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site (see IAS 37, Provisions, Contingent Liabilities and Contingent Assets). IAS 16.16-17If payment for an item of property, plant, and equipment is deferred, interest at a marketplace rate must be recognised or imputed. IAS 16.23 If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature), the cost will be measured at the fair foster unless (a) the exchange transaction lacks commercial s ubstance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. IAS 16.24Measurement Subsequent to Initial RecognitionIAS 16 permits two accounting modelsCost Model. The asset is carried at cost less accumulated dispraise and impairment. IAS 16.30 Revaluation Model. The asset is carried at a revalued amount, being its fair value at the date of revaluation lesssubsequent depreciation and impairment, provided that fair value can be measured reliably. IAS 16.31 The Revaluation ModelUnder the revaluation model, revaluations should be carried out regularly, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. IAS 16.31 If an item is revalued, the entire class of assets to which that asset belongs should be revalued. IAS 16.36 Revalued assets are depreciated in the sa me way as under(a) the cost model (see below). If a revaluation results in an increase in value, it should be credited to other comprehensive income and accumulated in comeliness under the heading revaluation surplus unless it represents the reversal of a revaluation decrease of the same asset previously recognised as an expense, in which cutting it should be recognised as income. IAS 16.39A decrease arising as a result of a revaluation should be recognised as an expense to the boundary that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. IAS 16.40 When a revalued asset is disposed of, any revaluation surplus may be transferred directly to retained earnings, or it may be left in equity under the heading revaluation surplus. The transfer to retained earnings should not be made through the income statement (that is, no recycling through profit or loss). IAS 16.41Depreciation (Cost and Revaluation Models)For all depreciable assetsThe depreciable amount (cost less respite value) should be allocated on a systematic basis over the assets useful life IAS 16.50. The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, any change is accounted for prospectively as a change in estimate under IAS 8. IAS 16.51 The depreciation method used should reflect the pattern in which the assets economic benefits are consumed by the entity IAS 16.60The depreciation method should be reviewed at least per annum and, if the pattern of consumption of benefits has changed, the depreciation method should be changed prospectively as a change in estimate under IAS 8. IAS 16.61 Depreciation should be charged to the income statement, unless it is include in the carrying amount of another asset IAS 16.48. Depreciationbegins when the asset is available for use and continues until the asset is derecognised, even if it is idle. IAS 16.55Recove rability of the Carrying AmountIAS 36 requires impairment testing and, if necessary, recognition for property, plant, and equipment. An item of property, plant, or equipment shall not be carried at more than recoverable amount. Recoverable amount is the higher of an assets fair value less costs to fail and its value in use. Any claim for compensation from third parties for impairment is included in profit or loss when the claim becomes receivable. IAS 16.65Derecogniton (Retirements and Disposals)An asset should be removed from the balance sheet on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is the difference between the proceeds and the carrying amount and should be recognised in the income statement. IAS 16.67-71 If an entity rents some assets and then ceases to rent them, the assets should be transferred to inventories at their carrying amounts as they become held for sale in the ordinary c ourse of business. IAS 16.68ADisclosureFor each class of property, plant, and equipment, disclose IAS 16.73 basis for measuring carrying amount depreciation method(s) useduseful lives or depreciation ratesgross carrying amount and accumulated depreciation and impairment losses reconciliation of the carrying amount at the beginning and the end of the period, showing additionsdisposalsacquisitions through business combinationsrevaluation increases or decreasesimpairment lossesreversals of impairment lossesdepreciationnet foreign exchange differences on supplantingother movementsAlso disclose IAS 16.74restrictions on titleexpenditures to construct property, plant, and equipment during the period contractual commitments to acquire property, plant, and equipment compensation from third parties for items of property, plant, and equipment that were impaired, lost or given up that is included in profit or loss If property, plant, and equipment is stated at revalued amounts, certain additio nal disclosures are required IAS 16.77 the effective date of the revaluationwhether an free valuer was involvedthe methods and significant assumptions used in estimating fair values the extent to which fair values were determined directly by reference to observable prices in an active market or recent market transactions on arms length terms or were estimated using other valuation techniques for each revalued class of property, the carrying amount that would have been recognised had the assets been carried under the cost model the revaluation surplus, including changes during the period and any restrictions on the distribution of the balance to shareholders