Educational Material on Ind AS 16 Property, Plant and Equipment


Educational Material on Ind AS 16 Property, Plant and Equipment

Ind AS 16 Property, Plant and Equipment :The accounting for Ind AS 16, Property, Plant and Equipment is a particularly important area of the Paper F7 syllabus. You can almost guarantee that in every exam you will be required to account for property, plant and equipment at least once. This article is designed to outline the key areas of Ind AS 16, Property, Plant and Equipment that you may be required to attempt in the F7 exam.

Ind AS 16 Property, Plant and Equipment :  Ind AS 16 Property, Plant and Equipment outlines the accounting treatment for most types of property,plant and equipment. Property, plant and equipment is initially measured at its cost, subsequently measured either using a cost or revaluation model, and depreciated so that its appreciable amount is allocated on a systematic basis over its useful life. Ind AS 16 was reissued in December 2003 and applies to annual periods beginning on or after 1 January 2005.

History of Ind AS 16

DateDevelopmentComments
August 1980Exposure Draft E18 Accounting for Property, Plant and Equipment in the Context of the Historical Cost System published 
March 1982Ind AS 16 Accounting for Property, Plant and Equipment issuedOperative for financial statements covering periods beginning on or after 1 January 1983
1 January 1992Exposure Draft E43 Property, Plant and Equipment published 
December 1993 Ind AS 16 Property, Plant and Equipment issued
(revised as part of the ‘Comparability of Financial Statements’ project)
Operative for financial statements covering periods beginning on or after 1 January 1995
April and July 1998Amended to be consistent with Ind AS 22, Ind AS 36 and Ind AS 37Operative for annual financial statements covering periods beginning on or after 1 July 1999
18 December 2003Ind AS 16 Property, Plant and Equipment issuedEffective for annual periods beginning on or after 1 January 2005
22 May 2008Amended by improvement to IFRSs (routine sales of assets held for rental)Effective for annual periods beginning on or after 1 January 2009
17 May 2012Amended by Annual Improvement 2009-2011 cycle  (classification of servicing equipment)Effective for annual periods beginning on or after 1 January 2013
12 December 2013Amended by Annual improvement 2010-2012 IFRSs Cycle (proportionate restatement of accumulated depreciation under the revaluation method)Effective for annual periods beginning on or after 1 July 2014
12 May 2014Amended by Clarification of Acceptable Methods of Depreciation and Amortisation ( Amendments to Ind AS 38 Effective for annual periods beginning on or after 1 January 2016
30 June 2014Amended by Agriculture : Bearer Plants ( Amendments to Ind AS 16 and  Ind AS 41 Effective for annual periods beginning on or after 1 January 2016

Educational Material on Ind AS 16 Property, Plant and Equipment

Ind AS 16 Property, Plant and Equipment : Ind AS 16 refers to tangible non-current assets as property, plant and equipment (PPE) and recognises that they possess a physical substance, are held for use in the production of goods or delivery of services or for an administrative purpose, and are expected to be used for more than one accounting period. In practice this definition causes few problems. PPE includes freehold and leasehold land, buildings and plant and machinery. 

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Objective of Ind AS 16

The objective of Ind AS 16 is to prescribe the accounting treatment for property, plant, and equipment. The principal issues are the recognition of assets, the determination of their carrying amounts, and the depreciation charges and impairment losses to be recognised in relation to them. Ind AS 16 should be followed when accounting for PPE unless another Ind AS or IFRS requires a different treatment. A business should recognise an asset when the risks and rewards associated with the asset pass to the business. The rewards are their custody, use and a claim on the benefits arising from the assets. The asset is under the control of the business, the control is as a direct result of a past transaction or event and future economic benefit will arise. The risks are the costs of repairs and maintenance and any loss arising from the asset. There should be an expectation that future economic benefits will flow to the owner and any costs can be measured reliably. This is in line with the definition of an asset as set out in the Ind AS Framework for the Preparation and Presentation of Financial Statements.

Scope

Ind AS 16 applies to the accounting for property, plant and equipment, except where another standard requires or permits differing accounting treatments, for example:

  • assets classified as held for sale in accordance with https://www.iasplus.com/en/standards/ifrs/ifrs5 Non-current Assets Held for Sale and Discontinued Operations
  • biological assets related to agricultural activity accounted for under Ind AS 41 Agriculture
  • exploration and evaluation assets recognised in accordance with IFRS 6 Exploration for and Evaluation of Mineral Resources
  • mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

The standard does apply to property, plant, and equipment used to develop or maintain the last three categories of assets. [Ind AS 16.3]

The cost model in Ind AS 16 also applies to investment property accounted for using the cost model under Ind AS 40 Investment Property. [Ind AS 16.5]

The standard does apply to bearer plants but it does not apply to the produce on bearer plants. 

Relevant link to download the Educational Material:  Ind AS 16 Property, Plant and Equipment

Educational Material on Ind AS 16 Property, Plant and Equipmen

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Educational Material on Ind AS 16 Property, Plant and Equipment

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