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IFRS amendments to IAS 16

IFRS amendments to IAS 16

IFRS amendments to IAS 16: In April 2001 the International Accounting Standards Board (the Board) adopted IAS 16 Property, Plant and Equipment, which had originally been issued by the International Accounting Standards Committee in December 1993. IAS 16 Property, Plant and Equipment replaced IAS 16 Accounting for Property, Plant and Equipment (issued in March 1982). IAS 16 that was issued in March 1982 also replaced some parts in IAS 4 Depreciation Accounting that was
approved in November 1975.
In December 2003 the Board issued a revised IAS 16 as part of its initial agenda of technical
projects. The revised Standard also replaced the guidance in three Interpretations (SIC-6
Costs of Modifying Existing Software, SIC-14 Property, Plant and Equipment—Compensation for the
Impairment or Loss of Items and SIC-23 Property, Plant and Equipment—Major Inspection or Overhaul
Costs).
In May 2014 the Board amended IAS 16 to prohibit the use of a revenue-based depreciation
method.
In June 2014 the Board amended the scope of IAS 16 to include bearer plants related to
agricultural activity.
Other Standards have made minor consequential amendments to IAS 16. They include
IFRS 13 Fair Value Measurement (issued May 2011), Annual Improvements to IFRSs 2009–2011 Cycle
(issued May 2012), Annual Improvements to IFRSs 2010–2012 Cycle (issued December 2013),
IFRS 15 Revenue from Contracts with Customers (issued May 2014) and IFRS 16 Leases (issued
January 2016).

IFRS amendments to IAS 16

IFRS amendments to IAS 16

IFRS amendments to IAS 16

International Accounting Standard 16 Property, Plant and Equipment (IAS 16) is set out in paragraphs 1–83 and the Appendix. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 16 should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

IFRS amendments to IAS 16

Introduction
IN1 International Accounting Standard 16 Property, Plant and Equipment (IAS 16) replaces IAS 16 Property, Plant and Equipment (revised in 1998), and should be applied for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. The Standard also replaces the following
Interpretations:
● SIC-6 Costs of Modifying Existing Software
● SIC-14 Property, Plant and Equipment—Compensation for the Impairment or Loss
of Items
● SIC-23 Property, Plant and Equipment—Major Inspection or Overhaul Costs.
The Board amended the scope of IAS 16 in 2014 to include bearer plants related
to agricultural activity.

IFRS amendments to IAS 16

Reasons for revising IAS 16
The International Accounting Standards Board developed this revised IAS 16 as part of its project on Improvements to International Accounting Standards. The project was undertaken in the light of queries and criticisms raised in relation to the Standards by securities regulators, professional accountants and
other interested parties. The objectives of the project were to reduce or eliminate alternatives, redundancies and conflicts within the Standards, to deal with some convergence issues and to make other improvements.
IN3 For IAS 16 the Board’s main objective was a limited revision to provide additional guidance and clarification on selected matters. The Board did not reconsider the fundamental approach to the accounting for property, plant and equipment contained in IAS 16.

IFRS amendments to IAS 16

The main changes
The main changes from the previous version of IAS 16 are described below.
Scope
This Standard clarifies that an entity is required to apply the principles of this Standard to items of property, plant and equipment used to develop or maintain (a) biological assets and (b) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources. Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41), issued in June 2014, amended the scope of
this Standard to include bearer plants related to agricultural activity.

Recognition: subsequent costs An entity evaluates under the general recognition principle all property, plant and equipment costs at the time they are incurred. Those costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service an item. The previous version of IAS 16 contained two recognition principles.

IFRS amendments to IAS 16

An entity applied the second recognition principle to subsequent costs. Measurement at recognition: asset dismantlement, removal and restoration costs .The cost of an item of property, plant and equipment includes the costs of its dismantlement, removal or restoration, the obligation for which an entity incurs as a consequence of installing the item. Its cost also includes the costs of its dismantlement, removal or restoration, the obligation for which an entity incurs as a consequence of using the item during a particular period for purposes other than to produce inventories during that period. The previous version of IAS 16 included within its scope only the costs incurred as a consequence of installing the item.

Measurement at recognition: asset exchange transactions.

IFRS amendments to IAS 16

An entity is required to measure an item of property, plant and equipment
acquired in exchange for a non-monetary asset or assets, or a combination of
monetary and non-monetary assets, at fair value unless the exchange transaction
lacks commercial substance. Under the previous version of IAS 16, an entity
measured such an acquired asset at fair value unless the exchanged assets were
similar.
Measurement after recognition: revaluation model
If fair value can be measured reliably, an entity may carry all items of property,
plant and equipment of a class at a revalued amount, which is the fair value of
the items at the date of the revaluation less any subsequent accumulated
depreciation and accumulated impairment losses. Under the previous version of
IAS 16, use of revalued amounts did not depend on whether fair values were
reliably measurable.

Depreciation: unit of measure
An entity is required to determine the depreciation charge separately for each
significant part of an item of property, plant and equipment. The previous
version of IAS 16 did not as clearly set out this requirement.
Depreciation: depreciable amount
An entity is required to measure the residual value of an item of property, plant
and equipment as the amount it estimates it would receive currently for the
asset if the asset were already of the age and in the condition expected at the end
of its useful life. The previous version of IAS 16 did not specify whether the
residual value was to be this amount or the amount, inclusive of the effects of
inflation, that an entity expected to receive in the future on the asset’s actual
retirement date.

Derecognition: derecognition date
An entity is required to derecognise the carrying amount of an item of property,
plant and equipment that it disposes of on the date the recipient obtains control
of that item in accordance with the requirements for determining when a
performance obligation is satisfied in IFRS 15 Revenue from Contracts with
Customers.
An entity is required to derecognise the carrying amount of a part of an item of
property, plant and equipment if that part has been replaced and the entity has
included the cost of the replacement in the carrying amount of the item.
The previous version of IAS 16 did not extend its derecognition principle to such
parts; rather, its recognition principle for subsequent expenditures effectively
precluded the cost of a replacement from being included in the carrying amount
of the item.
Derecognition: gain classification
An entity cannot classify as revenue a gain it realises on the disposal of an item
of property, plant and equipment. The previous version of IAS 16 did not
contain this provision.

Objective
The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment. The principal issues in
accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognised in relation to them.

Scope
This Standard shall be applied in accounting for property, plant and equipment except when another Standard requires or permits a different accounting treatment.
This Standard does not apply to:

  1. property, plant and equipment classified as held for sale in accordance
    with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
  2. biological assets related to agricultural activity other than bearer plants
    (see IAS 41 Agriculture). This Standard applies to bearer plants but it does
    not apply to the produce on bearer plants.
  3. the recognition and measurement of exploration and evaluation assets
    (see IFRS 6 Exploration for and Evaluation of Mineral Resources).
  4. mineral rights and mineral reserves such as oil, natural gas and similar
    non-regenerative resources.

IFRS amendments to IAS 16
However, this Standard applies to property, plant and equipment used to develop or maintain the assets described. An entity using the cost model for investment property in accordance with IAS 40 Investment Property shall use the cost model in this Standard for owned investment property.

IFRS amendments to IAS 16

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