Summary IAS 16 - Property Plant and Equipment Part 1 and 2
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Course
Financial Accounting 1 (ACCN1010)
Institution
University Of The Witwatersrand (wits)
Property Plant and Equipment is a large section in FinAcc 1, however, this document is an excellent summary of all the important elements of IAS 16. The definition, nature, and classification of PPE is explained simply in this document. Recognition criteria, measurement, and subsequent measurement ...
1. To prescribe the accounting treatment for property, plant and equipment.
2. So that users of F/S can discern info about the entity's investment in its property,
plant and equipment and the changes to the investment.
3. Principle issues in accounting for PPE:
o Recognition of assets.
o Determination of carrying amounts.
o Determination of impairment and depreciation.
Scope of IAS 16:
• Applied to the accounting for PPE except when another standard requires different
treatment.
• Included in the scope is investment property measured on the cost model.
• Scope exclusions:
o PPE classified as held for sale under IFRS 5
o Biological assets (IAS 41)
o Exploration and evaluation assets (IFRS 6)
o Mineral rights and reserves (oil)
Definitions of PPE: (OR-test)
PPE are tangible items that
1. Are held for use:
o In the production/supply of goods and services
o Or for rental to others
o Or for administrative purposes.
And
2. Are expected to be used during more than one period.
The nature of PPE:
Definition states it must be used for longer than 1 year, therefore a non-current asset.
, PPE and IAS 1 classification:
Per the requirements of IAS 1 an asset is considered to be current if:
• It is expected to realise the asset or intends to consume it in the normal operating
cycle.
• Holds the asset for the purpose of trading.
• Expects to realise the asset within 12 months after the reporting period.
• The asset is a cash/cash equivalent.
• All others - NON-CURRENT.
PPE and the asset definition:
Asset definition:
A present economic resource controlled by the entity as a result of past events.
Recognition criteria:
1. Relevance
o No existence uncertainty.
o High probability of inflow of economic benefits.
2. Faithful representation:
o No measurement uncertainty.
Common examples of PPE:
• Land
• Buildings
• Property
• Premises
• Plant
• Machinery
• Equipment
• Vehicles
• Furniture and fittings
Bearer plants:
• A bearer plant is a living plant that:
o Is used in the production or supply of agricultural produce.
o Is expected to bear produce for more than one period and
o Has a remote likelihood of being sold as agricultural produce, except for
incidental scrap sales.
• An example: plantation of trees that produce coffee beans.
• Plantation = PPE
• Coffee beans:
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