Question

Explain Merits and demerits of IAS 16 paragraph 17?

Answer 1

IAS 16

IAS 16 set out the standard for the recognition of property plant and equipment. property plant and equipment are measured based on ost or revaluation, and the property plant and equipment are depreciated based on the allocated depreciation basis. an asset must be recognized when under two basic functions.

• it is probable that future economic benefit will arise from the asset to the entity.
• also, the cost of the asset must be able to measure reliability.

there must be also relevant disclosure included in the statement under disclosure. this must include the basis of depreciation and also all relevant details about the disclosure.

now let's look at some of the merits and demerits of IAS 16 property plant and equipment,and this is mentioned below.

MERITS

• reliable and proper asset value,which means the balance sheet is stronger. the user of the balance sheet can depend on the value of the asset,because the asset value has reliability.
• this also ensure a better ratio analysis.mainly debt to equity ratios.
• better value of comprehensive income

DEMERITS

• the losses through property plant and equipment will be classified in P&L statement,and will be written off through this.
• higher amortisation or depriciation will lead to lower net income.