Property, Plant And Equipment Essay Example for Free

Property, Plant And Equipment EssayItems of property, plant, and equipment should be recognised as pluss when it is probable that IAS 16.7 it is probable that the emerging economic benefits associated with the summation will flow to the entity, and the court of the asset can be measured dependably.This acknowledgment principle is applied to all property, plant, and equipment cost at the time they argon incurred. These costs include costs incurred initially to acquire or construct an percentage point of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. IAS 16 does not prescribe the unit of measure for recognition what constitutes an item of property, plant, and equipment. IAS 16.9 Note, however, that if the cost model is apply (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 rec ognises that parts of some items of property, plant, and equipment whitethorn require replacement at regular intervals.The carrying amount of an item of property, plant, and equipment will include the cost of refilling thepart of such an item when that cost is incurred if the recognition criteria ( approaching 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 watchfulnesss 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 necessary, 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 record at cost. IAS 16.15 Cost includes all costs necessary to bring the asset to working condition for its mean use. This would include not only its original purchase price but also costs of lay 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 wages for an item of property, plant, and equipment is deferred, interest at a grocery 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 re observe unless (a) the exchange transaction lacks commercial nitty-gritty 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, beingness its fair value at the date of brushup lesssubsequent depreciation and impairment, provided that fair value can be measured reliably. IAS 16.31 The Revaluation ModelUnder the review 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 weather 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 depreciat ed in the same way as infra the cost model (see below). If a revaluation results in an increase in value, it should be credit to other comprehensive income and accumulated in equity under the design revaluation surplus unless it represents the backsliding of a revaluation decrease of the same asset previously recognised as an expense, in which boldness 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 extent 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 improvement or firing). IAS 16.41Depreciation (Cost and Revaluation Models)For all depreci able assetsThe depreciable amount (cost less residuary 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 closing 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 annually 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, level(p) if it is id le. IAS 16.55Recoverability 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 contend and its value in use. Any claim for hire 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 electric pig 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 sa le in the ordinary course 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 displacementother 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 a mounts, certain additional disclosures are required IAS 16.77 the effective date of the revaluationwhether an item-by-item valuer was involvedthe methods and significant assumptions used in estimating fair values the extent to which fair values were mulish 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