Ind AS 16: Property, Plant, and Equipment | IndAS 16 Vs AS 10

Ind AS 16 – Property, Plant, and Equipment: The objective of IndAS 16 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 recognized about them. Must Read Accounting Standard 10.

Property, plant, and equipment are tangible items that:

are held for use in the production or supply of goods or services, for rental to others, or administrative purposes; and

• are expected to be used during more than one

The cost of an item of property, plant, and equipment should be recognized as an asset if, and only if:

• future economic benefits associated with the item will probably flow to the entity; and
• the cost of the item can be measured

Entities accounting for investment property following Ind AS 40,

Investment Properties are required to use the cost model in this Standard.

Items such as spare parts, stand-by equipment, and servicing equipment are recognized following this Ind AS when they meet the definition of property, plant, and equipment. Otherwise, such items are classified as inventory.

Measurement at Recognition

An item of property, plant, and equipment that qualifies for recognition as an asset should be measured at its cost.

The cost of an item of property, plant, and equipment is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognized as interest throughout credit unless such interest is capitalized following Ind AS 23.

The cost of an item of property, plant, and equipment should comprise:

• its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and
• any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by
• the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that

Measurement after Recognition

An entity should choose either the cost model or the revaluation model as its accounting policy and apply that policy to an entire class of property, plant, and equipment. Must Check Marginal Costing Introduction.

Cost Model

After recognition as an asset, an item of property, plant, and equipment should be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Revaluation Model

After recognition as an asset, an item of property, plant, and equipment whose fair value can be measured reliably should be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations should be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.

If an asset’s carrying amount is increased as a result of a revaluation, the increase should be recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase should be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss.

If an asset’s carrying amount is decreased as a result of a revaluation, the decrease should be recognized as profit or loss. However, the decrease shall be recognized in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognized in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.

Depreciation

Each part of an item of property, plant, and equipment with a cost that is significant to the total cost of the item should be depreciated separately. The depreciation charge for each period should be recognized in profit or loss unless it is included in the carrying amount of another asset. Each part of an item of property, plant, and equipment with a cost that is significant about the total cost of the item shall be depreciated. You may also like Meaning of Accounting.

separately.

The depreciable amount of an asset should be allocated on a systematic basis over its useful life. The depreciable amount of an asset should be determined after deducting its residual value. The depreciation method used shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.

The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) should be accounted for as a change in an accounting estimate following Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.

Land and buildings are separable assets and should be accounted for separately, even when they are acquired together. With some exceptions, such as quarries and sites used for landfills, land has an unlimited useful life and therefore is not depreciated. Buildings have a limited useful life and therefore are depreciable assets. An increase in the value of the land on which a building stands does not affect the determination of the depreciable amount of the building.

Impairment

To determine whether an item of property, plant, and equipment is impaired, an entity should apply Ind AS 36, Impairment of Assets.

Derecognition

The carrying amount of an item of property, plant, and equipment should be de-recognized:

• on disposal; or
• when no future economic benefits are expected from its use or

Appendix B to Ind AS 16 guides the recognition of production stripping costs as an asset; initial measurement of the stripping activity asset; and subsequent measurement of the stripping activity asset. An entity shall recognize a stripping activity asset if, and only if, (a) it is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow to the entity; (b) the entity can identify the component of the ore body for which access has been improved; and (c) the costs relating to the stripping activity associated with that component can be

measured reliably. The entity shall initially measure the stripping activity asset at cost. After initial recognition, the stripping activity asset shall be carried at either its cost or its revalued amount less depreciation or amortization and less impairment losses, in the same way as the existing asset of which it is a part.

Difference Between AS 10 and Ind AS 16