IAS 16 covers all aspects of accounting for property, plant and equipment. This represents the bulk of items which are 'tangible' non-current assets.


Property, plant and equipment are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period.

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction.

Residual value is the net amount which the entity expects to obtain for an asset at the end of its useful life after deducting the expected costs of disposal.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (IFRS 13)

Carrying amount is the amount at which an asset is recognized in the statement of financial position after deducting any accumulated depreciation and accumulated impairment losses.

Impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

Initial Recognition of Assets

Recognition simply means incorporation of the item in the business's accounts, in this case as a non-current asset. The recognition of property, plant and equipment depends on two criteria:

(a) It is probable that future economic benefits associated with the asset will flow to the entity

(b) The cost of the asset to the entity can be measured reliably

Initial Measurement of Asset

Initially the asset is measured at cost. The cost includes purchase price, less any trade discount or rebate plus any Import duties and non-refundable purchase taxes and all directly attributable costs of bringing the asset to working condition for its intended use. It may also include the initial estimate of the unavoidable cost of dismantling and removing the asset and restoring the site on which it is located.

Subsequent Measurement of Assets

Subsequently the assets are measured on either cost model or revaluation model. The revaluation model is applicable only when the fair value of the asset is reliably measureable. Under cost model the asset is carried at cost less accumulated depreciation and impairment losses. Under revaluation model the asset is revalued at every reporting date and the depreciated over the remaining useful life. Thus the carrying amount of an asset is equal to the fair value less accumulated depreciation and impairment losses.

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