Question

What is the meaning of Property, Plant and Equipment according to IAS 16. Post your response in approx. 250- 350 words

Answer 1

IAS 16 establishes various principles for recognizing PPE as assets. PPE are tangible items that-

I) are held for use in the production or supply of goods & services or for rentals to others or for administrative purposes

II) are expected to be used during more than one period

PPE also includes bearer plants related to agricultural activity.

Recognition Criteria:- PPE is recognized as an asset only when it is probable that future economic benefits associated with the item will flow to the entity plus the cost of the item can be reliably measured.

An item of PPE is initially measured at Cost, which includes -

i) Purchase Price (inc. import duties after deducting trade discounts and rebates)

ii) Costs directly related to bringing the asset to the location and conditions which are necessary for it to be capable of operating in the manner that is intended by management

iii) Estimated costs of dismantling and removing the item

Further there are two models of recognition- Cost Model or Revaluation Model

Under the Cost model, item of PPE is carried at cost less depreciation(accumulated) and any impairment loss

Under the revaluation model, item of PPE is carried at revalued amount which is its fair value on the date of revaluation less any accumulated dep. and any impairment loss.