Overview statements, to ensure comparability both with the

entity's financial statements of previous periods and

IAS 1 Presentation of Financial Statements sets out with the financial statements of other entities. IAS 1
the overall requirements for financial statements, sets out the overall requirements for the presentation
including how they should be structured, the of financial statements, guidelines for their structure
minimum requirements for their content and and minimum requirements for their content. [IAS
overriding concepts such as going concern, the 1.1] Standards for recognising, measuring, and
accrual basis of accounting and the current/non- disclosing specific transactions are addressed in other
current distinction. The standard requires a complete Standards and Interpretations. [IAS 1.3]
set of financial statements to comprise a statement of
financial position, a statement of profit or loss and Scope
other comprehensive income, a statement of changes
in equity and a statement of cash flows. IAS 1 applies to all general purpose financial
statements that are prepared and presented in
IAS 1 was reissued in September 2007 and applies to accordance with International Financial Reporting
annual periods beginning on or after 1 January 2009. Standards (IFRSs). [IAS 1.2]

Related Interpretations General purpose financial statements are those

intended to serve users who are not in a position to
 IAS 1 (2003) superseded SIC-18 Consistency require financial reports tailored to their particular
- Alternative Methods information needs. [IAS 1.7]

 IFRIC 17 Distributions of Non-cash Assets to Objective of financial statements

Owners
The objective of general purpose financial statements
 SIC-27 Evaluating the Substance of is to provide information about the financial position,
Transactions in the Legal Form of a Lease financial performance, and cash flows of an entity
that is useful to a wide range of users in making
 SIC-29 Disclosure - Service Concession economic decisions. To meet that objective, financial
Arrangements statements provide information about an entity's:
[IAS 1.9]
Amendments under consideration
 assets
 IAS 1 — Disclosures about going concern
 liabilities
 IAS 1 — Classification of liabilities
 equity
 Disclosure initiative — Principles of
disclosure (research project)  income and expenses, including gains and
losses
 Disclosure initiative — Materiality (research
project)  contributions by and distributions to owners
(in their capacity as owners)
Summary of IAS 1
 cash flows.
Objective of IAS 1

The objective of IAS 1 (2007) is to prescribe the

basis for presentation of general purpose financial
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That information, along with other information in the statements – are outside the scope of IFRSs. [IAS
notes, assists users of financial statements in 1.14]
predicting the entity's future cash flows and, in
particular, their timing and certainty. Fair presentation and compliance with IFRSs

Components of financial statements The financial statements must "present fairly" the
financial position, financial performance and cash
A complete set of financial statements includes: [IAS flows of an entity. Fair presentation requires the
1.10] faithful representation of the effects of transactions,
other events, and conditions in accordance with the
 a statement of financial position (balance definitions and recognition criteria for assets,
sheet) at the end of the period liabilities, income and expenses set out in the
Framework. The application of IFRSs, with
 a statement of profit or loss and other additional disclosure when necessary, is presumed to
comprehensive income for the period result in financial statements that achieve a fair
(presented as a single statement, or by presentation. [IAS 1.15]
presenting the profit or loss section in a
separate statement of profit or loss, IAS 1 requires an entity whose financial statements
immediately followed by a statement comply with IFRSs to make an explicit and
presenting comprehensive income beginning unreserved statement of such compliance in the
with profit or loss) notes. Financial statements cannot be described as
complying with IFRSs unless they comply with all
 a statement of changes in equity for the the requirements of IFRSs (which includes
period International Financial Reporting Standards,
International Accounting Standards, IFRIC
 a statement of cash flows for the period Interpretations and SIC Interpretations). [IAS 1.16]

 notes, comprising a summary of significant Inappropriate accounting policies are not rectified
accounting policies and other explanatory either by disclosure of the accounting policies used
notes or by notes or explanatory material. [IAS 1.18]

IAS 1 acknowledges that, in extremely rare

 comparative information prescribed by the
circumstances, management may conclude that
standard.
compliance with an IFRS requirement would be so
misleading that it would conflict with the objective of
An entity may use titles for the statements other than
financial statements set out in the Framework. In
those stated above. All financial statements are
such a case, the entity is required to depart from the
required to be presented with equal prominence. [IAS
IFRS requirement, with detailed disclosure of the
1.10]
nature, reasons, and impact of the departure. [IAS
1.19-21]
When an entity applies an accounting policy
retrospectively or makes a retrospective restatement
Going concern
of items in its financial statements, or when it
reclassifies items in its financial statements, it must
The Conceptual Framework notes that financial
also present a statement of financial position (balance
statements are normally prepared assuming the entity
sheet) as at the beginning of the earliest comparative
is a going concern and will continue in operation for
period.
the foreseeable future. [Conceptual Framework,
paragraph 4.1]
Reports that are presented outside of the financial
statements – including financial reviews by
IAS 1 requires management to make an assessment
management, environmental reports, and value added
of an entity's ability to continue as a going concern.
Acquired from www.iasplus.com
If management has significant concerns about the unless another Standard requires otherwise.
entity's ability to continue as a going concern, the Comparative information is provided for narrative
uncertainties must be disclosed. If management and descriptive where it is relevant to understanding
concludes that the entity is not a going concern, the the financial statements of the current period. [IAS
financial statements should not be prepared on a 1.38]
going concern basis, in which case IAS 1 requires a
series of disclosures. [IAS 1.25] An entity is required to present at least two of each of
the following primary financial statements: [IAS
Accrual basis of accounting 1.38A]

IAS 1 requires that an entity prepare its financial  statement of financial position*
statements, except for cash flow information, using
the accrual basis of accounting. [IAS 1.27]  statement of profit or loss and other
comprehensive income
Consistency of presentation
 separate statements of profit or loss (where
The presentation and classification of items in the presented)
financial statements shall be retained from one period
to the next unless a change is justified either by a  statement of cash flows
change in circumstances or a requirement of a new
IFRS. [IAS 1.45]  statement of changes in equity
Materiality and aggregation  related notes for each of the above items.
Each material class of similar items must be * A third statement of financial position is required to
presented separately in the financial statements. be presented if the entity retrospectively applies an
Dissimilar items may be aggregated only if the are accounting policy, restates items, or reclassifies
individually immaterial. [IAS 1.29] items, and those adjustments had a material effect on
the information in the statement of financial position
However, information should not be obscured by at the beginning of the comparative period. [IAS
aggregating or by providing immaterial information, 1.40A]
materiality considerations apply to the all parts of the
financial statements, and even when a standard Where comparative amounts are changed or
requires a specific disclosure, materiality reclassified, various disclosures are required. [IAS
considerations do apply. [IAS 1.30A-31]* 1.41]
* Added by Disclosure Initiative (Amendments to Structure and content of financial statements in
IAS 1), effective 1 January 2016. general
Offsetting IAS 1 requires an entity to clearly identify: [IAS
1.49-51]
Assets and liabilities, and income and expenses, may
not be offset unless required or permitted by an
 the financial statements, which must be
IFRS. [IAS 1.32]
distinguished from other information in a
published document
Comparative information
 each financial statement and the notes to the
IAS 1 requires that comparative information to be
financial statements.
disclosed in respect of the previous period for all
amounts reported in the financial statements, both on
the face of the financial statements and in the notes,
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In addition, the following information must be  expected to be realised within 12 months after
displayed prominently, and repeated as necessary: the reporting period
[IAS 1.51]
 cash and cash equivalents (unless restricted).
 the name of the reporting entity and any
change in the name All other assets are non-current. [IAS 1.66]

 whether the financial statements are a group Current liabilitiesare those: [IAS 1.69]
of entities or an individual entity
 expected to be settled within the entity's
 information about the reporting period normal operating cycle

 the presentation currency (as defined by  held for purpose of trading

IAS 21 The Effects of Changes in Foreign
Exchange Rates)  due to be settled within 12 months

 the level of rounding used (e.g. thousands,  for which the entity does not have an
millions). unconditional right to defer settlement
beyond 12 months (settlement by the issue of
Reporting period equity instruments does not impact
classification).
There is a presumption that financial statements will
be prepared at least annually. If the annual reporting Other liabilities are non-current.
period changes and financial statements are prepared
for a different period, the entity must disclose the When a long-term debt is expected to be refinanced
reason for the change and state that amounts are not under an existing loan facility, and the entity has the
entirely comparable. [IAS 1.36] discretion to do so, the debt is classified as non-
current, even if the liability would otherwise be due
Statement of financial position (balance sheet) within 12 months. [IAS 1.73]

Current and non-current classification If a liability has become payable on demand because
an entity has breached an undertaking under a long-
An entity must normally present a classified term loan agreement on or before the reporting date,
statement of financial position, separating current the liability is current, even if the lender has agreed,
and non-current assets and liabilities, unless after the reporting date and before the authorisation
presentation based on liquidity provides information of the financial statements for issue, not to demand
that is reliable. [IAS 1.60] In either case, if an asset payment as a consequence of the breach. [IAS 1.74]
(liability) category combines amounts that will be However, the liability is classified as non-current if
received (settled) after 12 months with assets the lender agreed by the reporting date to provide a
(liabilities) that will be received (settled) within 12 period of grace ending at least 12 months after the
months, note disclosure is required that separates the end of the reporting period, within which the entity
longer-term amounts from the 12-month amounts. can rectify the breach and during which the lender
[IAS 1.61] cannot demand immediate repayment. [IAS 1.75]

Current assets are assets that are: [IAS 1.66] Line items

 expected to be realised in the entity's normal The line items to be included on the face of the
operating cycle statement of financial position are: [IAS 1.54]

 held primarily for the purpose of trading (a) property, plant and equipment
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(b) investment property  disaggregation of inventories in accordance
(c) intangible assets with IAS 2 Inventories
financial assets (excluding amounts shown
(d)  disaggregation of provisions into employee
under (e), (h), and (i))
investments accounted for using the equity benefits and other items
(e)
method
(f) biological assets  classes of equity and reserves.
(g) Inventories
Format of statement
(h) trade and other receivables
(i) cash and cash equivalents IAS 1 does not prescribe the format of the statement
(j) assets held for sale of financial position. Assets can be presented current
(k) trade and other payables then non-current, or vice versa, and liabilities and
(l) Provisions equity can be presented current then non-current then
financial liabilities (excluding amounts shown equity, or vice versa. A net asset presentation (assets
(m)
under (k) and (l)) minus liabilities) is allowed. The long-term financing
current tax liabilities and current tax assets, as approach used in UK and elsewhere – fixed assets +
(n) current assets - short term payables = long-term debt
defined in IAS 12
deferred tax liabilities and deferred tax assets, as plus equity – is also acceptable.
(o)
defined in IAS 12
(p) liabilities included in disposal groups Share capital and reserves
non-controlling interests, presented within
(q) Regarding issued share capital and reserves, the
equity
following disclosures are required: [IAS 1.79]
issued capital and reserves attributable to owners
(r)
of the parent.
 numbers of shares authorised, issued and
fully paid, and issued but not fully paid
Additional line items, headings and subtotals may be
needed to fairly present the entity's financial position.
[IAS 1.55]  par value (or that shares do not have a par
value)
When an entity presents subtotals, those subtotals
shall be comprised of line items made up of amounts  a reconciliation of the number of shares
recognised and measured in accordance with IFRS; outstanding at the beginning and the end of
be presented and labelled in a clear and the period
understandable manner; be consistent from period to
period; and not be displayed with more prominence  description of rights, preferences, and
than the required subtotals and totals. [IAS 1.55A]* restrictions

* Added by Disclosure Initiative (Amendments to  treasury shares, including shares held by

IAS 1), effective 1 January 2016. subsidiaries and associates

Further sub-classifications of line items presented are  shares reserved for issuance under options
made in the statement or in the notes, for example: and contracts
[IAS 1.77-78]:
 a description of the nature and purpose of
 classes of property, plant and equipment each reserve within equity.

 disaggregation of receivables Additional disclosures are required in respect of

entities without share capital and where an entity has

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reclassified puttable financial instruments. [IAS
1.80-80A] Effects of Changes in Foreign Exchange
Rates
Statement of profit or loss and other
comprehensive income  Gains and losses on remeasuring available-
for-sale financial assets in accordance with
Concepts of profit or loss and comprehensive IAS 39 Financial Instruments: Recognition
income and Measurement

Profit or loss is defined as "the total of income less  The effective portion of gains and losses on
expenses, excluding the components of other hedging instruments in a cash flow hedge
comprehensive income". Other comprehensive under IAS 39 or IFRS 9 Financial
income is defined as comprising "items of income Instruments
and expense (including reclassification adjustments)
that are not recognised in profit or loss as required or  Gains and losses on remeasuring an
permitted by other IFRSs". Total comprehensive investment in equity instruments where the
income is defined as "the change in equity during a entity has elected to present them in other
period resulting from transactions and other events, comprehensive income in accordance with
other than those changes resulting from transactions IFRS 9
with owners in their capacity as owners". [IAS 1.7]
 The effects of changes in the credit risk of a
financial liability designated as at fair value
Comprehensive Profit Other through profit and loss under IFRS 9.
income = or + comprehensive
for the period loss income
In addition, IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors requires the
All items of income and expense recognised in a correction of errors and the effect of changes in
period must be included in profit or loss unless a accounting policies to be recognised outside profit or
Standard or an Interpretation requires otherwise. loss for the current period. [IAS 1.89]
[IAS 1.88] Some IFRSs require or permit that some
components to be excluded from profit or loss and Choice in presentation and basic requirements
instead to be included in other comprehensive
income. An entity has a choice of presenting:
Examples of items recognised outside of profit or  a single statement of profit or loss and other
loss comprehensive income, with profit or loss
and other comprehensive income presented in
 Changes in revaluation surplus where the two sections, or
revaluation method is used under IAS 16
Property, Plant and Equipment and IAS 38  two statements:
Intangible Assets
o a separate statement of profit or loss
 Remeasurements of a net defined benefit
liability or asset recognised in accordance o a statement of comprehensive
with IAS 19 Employee Benefits (2011) income, immediately following the
statement of profit or loss and
 Exchange differences from translating beginning with profit or loss [IAS
functional currencies into presentation 1.10A]
currency in accordance with IAS 21 The
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The statement(s) must present: [IAS 1.81A] The other comprehensive income section is required
to present line items which are classified by their
 profit or loss nature, and grouped between those items that will or
will not be reclassified to profit and loss in
 total other comprehensive income subsequent periods. [IAS 1.82A]

 comprehensive income for the period An entity's share of OCI of equity-accounted

associates and joint ventures is presented in
 an allocation of profit or loss and aggregate as single line items based on whether or
comprehensive income for the period not it will subsequently be reclassified to profit or
between non-controlling interests and owners loss. [IAS 1.82A]*
of the parent.
* Clarified by Disclosure Initiative (Amendments to
Profit or loss section or statement IAS 1), effective 1 January 2016.

The following minimum line items must be presented When an entity presents subtotals, those subtotals
in the profit or loss section (or separate statement of shall be comprised of line items made up of amounts
profit or loss, if presented): [IAS 1.82-82A] recognised and measured in accordance with IFRS;
be presented and labelled in a clear and
 revenue understandable manner; be consistent from period to
period; not be displayed with more prominence than
the required subtotals and totals; and reconciled with
 gains and losses from the derecognition of
the subtotals or totals required in IFRS. [IAS 1.85A-
financial assets measured at amortised cost
85B]*
 finance costs
* Added by Disclosure Initiative (Amendments to
IAS 1), effective 1 January 2016.
 share of the profit or loss of associates and
joint ventures accounted for using the equity Other requirements
method
Additional line items may be needed to fairly present
 certain gains or losses associated with the the entity's results of operations. [IAS 1.85]
reclassification of financial assets
Items cannot be presented as 'extraordinary items' in
 tax expense the financial statements or in the notes. [IAS 1.87]

 a single amount for the total of discontinued Certain items must be disclosed separately either in
items the statement of comprehensive income or in the
notes, if material, including: [IAS 1.98]
Expenses recognised in profit or loss should be
analysed either by nature (raw materials, staffing  write-downs of inventories to net realisable
costs, depreciation, etc.) or by function (cost of sales, value or of property, plant and equipment to
selling, administrative, etc). [IAS 1.99] If an entity recoverable amount, as well as reversals of
categorises by function, then additional information such write-downs
on the nature of expenses – at a minimum
depreciation, amortisation and employee benefits  restructurings of the activities of an entity and
expense – must be disclosed. [IAS 1.104] reversals of any provisions for the costs of
restructuring
Other comprehensive income section

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  disposals of items of property, plant and * An analysis of other comprehensive income by
equipment item is required to be presented either in the
statement or in the notes. [IAS 1.106A]
 disposals of investments
The following amounts may also be presented on the
 discontinuing operations face of the statement of changes in equity, or they
may be presented in the notes: [IAS 1.107]
 litigation settlements
 amount of dividends recognised as
 other reversals of provisions distributions

Statement of cash flows  the related amount per share.

Rather than setting out separate requirements for Notes to the financial statements
presentation of the statement of cash flows, IAS
1.111 refers to IAS 7 Statement of Cash Flows. The notes must: [IAS 1.112]

Statement of changes in equity  present information about the basis of

preparation of the financial statements and the
IAS 1 requires an entity to present a separate specific accounting policies used
statement of changes in equity. The statement must
show: [IAS 1.106]  disclose any information required by IFRSs
that is not presented elsewhere in the
 total comprehensive income for the period, financial statements and
showing separately amounts attributable to
owners of the parent and to non-controlling  provide additional information that is not
interests presented elsewhere in the financial
statements but is relevant to an understanding
 the effects of any retrospective application of of any of them
accounting policies or restatements made in
accordance with IAS 8, separately for each Notes are presented in a systematic manner and
component of other comprehensive income cross-referenced from the face of the financial
statements to the relevant note. [IAS 1.113]
 reconciliations between the carrying amounts
at the beginning and the end of the period for IAS 1.114 suggests that the notes should normally be
each component of equity, separately presented in the following order:*
disclosing:
 a statement of compliance with IFRSs
o profit or loss
 a summary of significant accounting policies
o other comprehensive income* applied, including: [IAS 1.117]

o transactions with owners, showing o the measurement basis (or bases) used
separately contributions by and in preparing the financial statements
distributions to owners and changes in
ownership interests in subsidiaries that o the other accounting policies used that
do not result in a loss of control are relevant to an understanding of the
financial statements

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  supporting information for items presented on An entity must also disclose, in the notes,
the face of the statement of financial position information about the key assumptions concerning
(balance sheet), statement(s) of profit or loss the future, and other key sources of estimation
and other comprehensive income, statement uncertainty at the end of the reporting period, that
of changes in equity and statement of cash have a significant risk of causing a material
flows, in the order in which each statement adjustment to the carrying amounts of assets and
and each line item is presented liabilities within the next financial year. [IAS 1.125]
These disclosures do not involve disclosing budgets
 other disclosures, including: or forecasts. [IAS 1.130]

o contingent liabilities (see IAS 37) and Dividends

unrecognised contractual
commitments In addition to the distributions information in the
statement of changes in equity (see above), the
o non-financial disclosures, such as the following must be disclosed in the notes: [IAS 1.137]
entity's financial risk management
objectives and policies (see IFRS 7  the amount of dividends proposed or declared
Financial Instruments: Disclosures) before the financial statements were
authorised for issue but which were not
* Disclosure Initiative (Amendments to IAS 1), recognised as a distribution to owners during
effective 1 January 2016, clarifies this order just to the period, and the related amount per share
be an example of how notes can be ordered and adds
additional examples of possible ways of ordering the  the amount of any cumulative preference
notes to clarify that understandability and dividends not recognised.
comparability should be considered when
determining the order of the notes. Capital disclosures

Other disclosures An entity discloses information about its objectives,

policies and processes for managing capital. [IAS
Judgements and key assumptions 1.134] To comply with this, the disclosures include:
[IAS 1.135]
An entity must disclose, in the summary of
significant accounting policies or other notes, the  qualitative information about the entity's
judgements, apart from those involving estimations, objectives, policies and processes for
that management has made in the process of applying managing capital, including>
the entity's accounting policies that have the most
significant effect on the amounts recognised in the o description of capital it manages
financial statements. [IAS 1.122]
o nature of external capital
Examples cited in IAS 1.123 include management's requirements, if any
judgements in determining:
o how it is meeting its objectives
 when substantially all the significant risks and
rewards of ownership of financial assets and  quantitative data about what the entity regards
lease assets are transferred to other entities as capital

 whether, in substance, particular sales of  changes from one period to another

goods are financing arrangements and
therefore do not give rise to revenue.  whether the entity has complied with any
external capital requirements and
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  if it has not complied, the consequences of The 2007 comprehensive revision to IAS 1
such non-compliance. introduced some new terminology. Consequential
amendments were made at that time to all of the
Puttable financial instruments other existing IFRSs, and the new terminology has
been used in subsequent IFRSs including
IAS 1.136A requires the following additional amendments. IAS 1.8 states: "Although this Standard
disclosures if an entity has a puttable instrument that uses the terms 'other comprehensive income', 'profit
is classified as an equity instrument: or loss' and 'total comprehensive income', an entity
may use other terms to describe the totals as long as
 summary quantitative data about the amount the meaning is clear. For example, an entity may use
classified as equity the term 'net income' to describe profit or loss." Also,
IAS 1.57(b) states: "The descriptions used and the
 the entity's objectives, policies and processes ordering of items or aggregation of similar items may
for managing its obligation to repurchase or be amended according to the nature of the entity and
redeem the instruments when required to do its transactions, to provide information that is
so by the instrument holders, including any relevant to an understanding of the entity's financial
changes from the previous period position."

 the expected cash outflow on redemption or Term before 2007 Term as amended by IAS 1
repurchase of that class of financial revision of IAS 1 (2007)
instruments and statement of financial
balance sheet
position
 information about how the expected cash cash flow statement statement of cash flows
outflow on redemption or repurchase was statement of comprehensive
determined. income (income statement is
income statement
retained in case of a two-
Other information statement approach)

The following other note disclosures are required by recognised in the

IAS 1 if not disclosed elsewhere in information recognised in profit or loss
income statement
published with the financial statements: [IAS 1.138] recognised [directly]
recognised in other
in equity (only for OCI
 domicile and legal form of the entity comprehensive income
components)
recognised [directly]
 country of incorporation in equity (for recognised outside profit or
recognition both in loss (either in OCI or equity)
 address of registered office or principal place OCI and equity)
of business removed from equity
reclassified from equity to
and recognised in
 description of the entity's operations and profit or loss as a
profit or loss
principal activities reclassification adjustment
('recycling')
Standard or/and
 if it is part of a group, the name of its parent IFRSs
Interpretation
and the ultimate parent of the group on the face of in
owners (exception for
 if it is a limited life entity, information equity holders
'ordinary equity holders')
regarding the length of the life
balance sheet date end of the reporting period
reporting date end of the reporting period
Terminology
after the balance sheet after the reporting period
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date  SIC-14 Property, Plant and Equipment –
Compensation for the Impairment or Loss of
Items. SIC-14 was superseded by and
incorporated into IAS 16 (2003).

 SIC-23 Property, Plant and Equipment -

Major Inspection or Overhaul Costs. SIC-23
was superseded by and incorporated into
IAS 16 (2003).

Amendments under consideration by the IASB

 IAS 16 — Proceeds before intended use

Summary of IAS 16

Objective of IAS 16

The objective of IAS 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.

Scope

Overview IAS 16 applies to the accounting for property, plant

and equipment, except where another standard
IAS 16 Property, Plant and Equipment outlines the requires or permits differing accounting treatments,
accounting treatment for most types of property, for example:
plant and equipment. Property, plant and equipment
is initially measured at its cost, subsequently  assets classified as held for sale in accordance
measured either using a cost or revaluation model, with IFRS 5 Non-current Assets Held for Sale
and depreciated so that its depreciable amount is and Discontinued Operations
allocated on a systematic basis over its useful life.
 biological assets related to agricultural
IAS 16 was reissued in December 2003 and applies activity accounted for under IAS 41
to annual periods beginning on or after 1 January Agriculture
2005.
 exploration and evaluation assets recognised
Related Interpretations in accordance with IFRS 6 Exploration for
and Evaluation of Mineral Resources
 IFRIC 20 Stripping Costs in the Production
Phase of a Surface Mine  mineral rights and mineral reserves such as
oil, natural gas and similar non-regenerative
 SIC-6 Costs of Modifying Existing Software. resources.
SIC-6 was superseded by and incorporated
into IAS 16 (2003).
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The standard does apply to property, plant, and item when that cost is incurred if the recognition
equipment used to develop or maintain the last three criteria (future benefits and measurement reliability)
categories of assets. [IAS 16.3] are met. The carrying amount of those parts that are
replaced is derecognised in accordance with the
The cost model in IAS 16 also applies to investment derecognition provisions of IAS 16.67-72. [IAS
property accounted for using the cost model under 16.13]
IAS 40 Investment Property. [IAS 16.5]
Also, continued operation of an item of property,
The standard does apply to bearer plants but it does plant, and equipment (for example, an aircraft) may
not apply to the produce on bearer plants. [IAS 16.3] require regular major inspections for faults regardless
of whether parts of the item are replaced. When each
Note: Bearer plants were brought into the scope of major inspection is performed, its cost is recognised
IAS 16 by Agriculture: Bearer Plants (Amendments in the carrying amount of the item of property, plant,
to IAS 16 and IAS 41), which applies to annual and equipment as a replacement if the recognition
periods beginning on or after 1 January 2016. 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
Recognition constructed. [IAS 16.14]

Items of property, plant, and equipment should be Initial measurement

recognised as assets when it is probable that: [IAS
16.7] An item of property, plant and equipment should
initially be recorded at cost. [IAS 16.15] Cost
 it is probable that the future economic includes all costs necessary to bring the asset to
benefits associated with the asset will flow to working condition for its intended use. This would
the entity, and include not only its original purchase price but also
costs of site preparation, delivery and handling,
 the cost of the asset can be measured reliably. installation, related professional fees for architects
and engineers, and the estimated cost of dismantling
This recognition principle is applied to all property, and removing the asset and restoring the site (see
plant, and equipment costs at the time they are IAS 37 Provisions, Contingent Liabilities and
incurred. These costs include costs incurred initially Contingent Assets). [IAS 16.16-17]
to acquire or construct an item of property, plant and
equipment and costs incurred subsequently to add to, If payment for an item of property, plant, and
replace part of, or service it. equipment is deferred, interest at a market rate must
be recognised or imputed. [IAS 16.23]
IAS 16 does not prescribe the unit of measure for
recognition – what constitutes an item of property, If an asset is acquired in exchange for another asset
plant, and equipment. [IAS 16.9] Note, however, that (whether similar or dissimilar in nature), the cost will
if the cost model is used (see below) each part of an be measured at the fair value unless (a) the exchange
item of property, plant, and equipment with a cost transaction lacks commercial substance or (b) the fair
that is significant in relation to the total cost of the value of neither the asset received nor the asset given
item must be depreciated separately. [IAS 16.43] up is reliably measurable. If the acquired item is not
measured at fair value, its cost is measured at the
IAS 16 recognises that parts of some items of carrying amount of the asset given up. [IAS 16.24]
property, plant, and equipment may require
replacement at regular intervals. The carrying Measurement subsequent to initial recognition
amount of an item of property, plant, and equipment
will include the cost of replacing the part of such an IAS 16 permits two accounting models:

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  Cost model. The asset is carried at cost less The depreciable amount (cost less residual value)
accumulated depreciation and impairment. should be allocated on a systematic basis over the
[IAS 16.30] asset's useful life [IAS 16.50].

 Revaluation model. The asset is carried at a The residual value and the useful life of an asset
revalued amount, being its fair value at the should be reviewed at least at each financial year-end
date of revaluation less subsequent and, if expectations differ from previous estimates,
depreciation and impairment, provided that any change is accounted for prospectively as a
fair value can be measured reliably. [IAS change in estimate under IAS 8. [IAS 16.51]
16.31]
The depreciation method used should reflect the
The revaluation model pattern in which the asset's economic benefits are
consumed by the entity [IAS 16.60]; a depreciation
Under the revaluation model, revaluations should be method that is based on revenue that is generated by
carried out regularly, so that the carrying amount of an activity that includes the use of an asset is not
an asset does not differ materially from its fair value appropriate. [IAS 16.62A]
at the balance sheet date. [IAS 16.31]
Note: The clarification regarding the revenue-based
If an item is revalued, the entire class of assets to depreciation method was introduced by Clarification
which that asset belongs should be revalued. [IAS of Acceptable Methods of Depreciation and
16.36] Amortisation, which applies to annual periods
beginning on or after 1 January 2016.
Revalued assets are depreciated in the same way as
under the cost model (see below). The depreciation method should be reviewed at least
annually and, if the pattern of consumption of
If a revaluation results in an increase in value, it benefits has changed, the depreciation method should
should be credited to other comprehensive income be changed prospectively as a change in estimate
and accumulated in equity under the heading under IAS 8. [IAS 16.61] Expected future reductions
"revaluation surplus" unless it represents the reversal in selling prices could be indicative of a higher rate
of a revaluation decrease of the same asset previously of consumption of the future economic benefits
recognised as an expense, in which case it should be embodied in an asset. [IAS 16.56]
recognised in profit or loss. [IAS 16.39]
Note: The guidance on expected future reductions in
A decrease arising as a result of a revaluation should selling prices was introduced by Clarification of
be recognised as an expense to the extent that it Acceptable Methods of Depreciation and
exceeds any amount previously credited to the Amortisation, which applies to annual periods
revaluation surplus relating to the same asset. [IAS beginning on or after 1 January 2016.
16.40]
Depreciation should be charged to profit or loss,
When a revalued asset is disposed of, any revaluation unless it is included in the carrying amount of
surplus may be transferred directly to retained another asset [IAS 16.48].
earnings, or it may be left in equity under the heading
revaluation surplus. The transfer to retained earnings Depreciation begins when the asset is available for
should not be made through profit or loss. [IAS use and continues until the asset is derecognised,
16.41] even if it is idle. [IAS 16.55]

Depreciation (cost and revaluation models) Recoverability of the carrying amount

For all depreciable assets: IAS 16 Property, Plant and Equipment requires
impairment testing and, if necessary, recognition for
property, plant, and equipment. An item of property,
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plant, or equipment shall not be carried at more than o revaluation increases or decreases
recoverable amount. Recoverable amount is the
higher of an asset's fair value less costs to sell and its o impairment losses
value in use.
o reversals of impairment losses
Any claim for compensation from third parties for
impairment is included in profit or loss when the o depreciation
claim becomes receivable. [IAS 16.65]
o net foreign exchange differences on
Derecognition (retirements and disposals) translation
An asset should be removed from the statement of o other movements
financial position on disposal or when it is withdrawn
from use and no future economic benefits are
Additional disclosures
expected from its disposal. The gain or loss on
disposal is the difference between the proceeds and
The following disclosures are also required: [IAS
the carrying amount and should be recognised in
16.74]
profit and loss. [IAS 16.67-71]
 restrictions on title and items pledged as
If an entity rents some assets and then ceases to rent
security for liabilities
them, the assets should be transferred to inventories
at their carrying amounts as they become held for
sale in the ordinary course of business. [IAS 16.68A]  expenditures to construct property, plant, and
equipment during the period
Disclosure
 contractual commitments to acquire property,
Information about each class of property, plant and plant, and equipment
equipment
 compensation from third parties for items of
For each class of property, plant, and equipment, property, plant, and equipment that were
disclose: [IAS 16.73] impaired, lost or given up that is included in
profit or loss.
 basis for measuring carrying amount
IAS 16 also encourages, but does not require, a
 depreciation method(s) used number of additional disclosures. [IAS 16.79]

Revalued property, plant and equipment

 useful lives or depreciation rates
If property, plant, and equipment is stated at revalued
 gross carrying amount and accumulated
amounts, certain additional disclosures are required:
depreciation and impairment losses
[IAS 16.77]
 reconciliation of the carrying amount at the
 the effective date of the revaluation
beginning and the end of the period, showing:
 whether an independent valuer was involved
o additions
 for each revalued class of property, the
o disposals
carrying amount that would have been
recognised had the assets been carried under
o acquisitions through business
the cost model
combinations
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  the revaluation surplus, including changes in the production process for sale in the ordinary
during the period and any restrictions on the course of business (work in process), and materials
distribution of the balance to shareholders. and supplies that are consumed in production (raw
materials). [IAS 2.6]
Entities with property, plant and equipment stated at
revalued amounts are also required to make However, IAS 2 excludes certain inventories from its
disclosures under IFRS 13 Fair Value Measurement. scope: [IAS 2.2]

 work in process arising under construction

contracts (see IAS 11 Construction
Overview Contracts)

IAS 2 Inventories contains the requirements on how  financial instruments (see IAS 39 Financial
to account for most types of inventory. The standard Instruments: Recognition and Measurement)
requires inventories to be measured at the lower of
cost and net realisable value (NRV) and outlines  biological assets related to agricultural
acceptable methods of determining cost, including activity and agricultural produce at the point
specific identification (in some cases), first-in first- of harvest (see IAS 41 Agriculture).
out (FIFO) and weighted average cost.
Also, while the following are within the scope of the
A revised version of IAS 2 was issued in December standard, IAS 2 does not apply to the measurement of
2003 and applies to annual periods beginning on or inventories held by: [IAS 2.3]
after 1 January 2005.
 producers of agricultural and forest products,
Related Interpretations agricultural produce after harvest, and
minerals and mineral products, to the extent
 IFRIC 20 Stripping Costs in the Production that they are measured at net realisable value
Phase of a Surface Mine (above or below cost) in accordance with
well-established practices in those industries.
 SIC-1 Consistency - Different Cost Formulas When such inventories are measured at net
for Inventories. SIC-1 was superseded by realisable value, changes in that value are
and incorporated into IAS 2 (Revised recognised in profit or loss in the period of
2003). the change

Summary of IAS 2  commodity brokers and dealers who measure

their inventories at fair value less costs to sell.
Objective of IAS 2 When such inventories are measured at fair
value less costs to sell, changes in fair value
The objective of IAS 2 is to prescribe the accounting less costs to sell are recognised in profit or
treatment for inventories. It provides guidance for loss in the period of the change.
determining the cost of inventories and for
subsequently recognising an expense, including any Fundamental principle of IAS 2
write-down to net realisable value. It also provides
guidance on the cost formulas that are used to assign Inventories are required to be stated at the lower of
costs to inventories. cost and net realisable value (NRV). [IAS 2.9]

Scope Measurement of inventories

Inventories include assets held for sale in the Cost should include all: [IAS 2.10]
ordinary course of business (finished goods), assets

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  costs of purchase (including taxes, transport, nature and use to the entity. For groups of inventories
and handling) net of trade discounts received that have different characteristics, different cost
formulas may be justified. [IAS 2.25]
 costs of conversion (including fixed and
variable manufacturing overheads) and Write-down to net realisable value

 other costs incurred in bringing the NRV is the estimated selling price in the ordinary
inventories to their present location and course of business, less the estimated cost of
condition completion and the estimated costs necessary to
make the sale. [IAS 2.6] Any write-down to NRV
IAS 23 Borrowing Costs identifies some limited should be recognised as an expense in the period in
circumstances where borrowing costs (interest) can which the write-down occurs. Any reversal should be
be included in cost of inventories that meet the recognised in the income statement in the period in
definition of a qualifying asset. [IAS 2.17 and IAS which the reversal occurs. [IAS 2.34]
23.4]
Expense recognition
Inventory cost should not include: [IAS 2.16 and
2.18] IAS 18 Revenue addresses revenue recognition for
the sale of goods. When inventories are sold and
 abnormal waste revenue is recognised, the carrying amount of those
inventories is recognised as an expense (often called
 storage costs cost-of-goods-sold). Any write-down to NRV and
any inventory losses are also recognised as an
expense when they occur. [IAS 2.34]
 administrative overheads unrelated to
production
Disclosure
 selling costs
Required disclosures: [IAS 2.36]
 foreign exchange differences arising directly
 accounting policy for inventories
on the recent acquisition of inventories
invoiced in a foreign currency
 carrying amount, generally classified as
merchandise, supplies, materials, work in
 interest cost when inventories are purchased
progress, and finished goods. The
with deferred settlement terms.
classifications depend on what is appropriate
for the entity
The standard cost and retail methods may be used for
the measurement of cost, provided that the results
approximate actual cost. [IAS 2.21-22]  carrying amount of any inventories carried at
fair value less costs to sell
For inventory items that are not interchangeable,
specific costs are attributed to the specific individual  amount of any write-down of inventories
items of inventory. [IAS 2.23] recognised as an expense in the period

For items that are interchangeable, IAS 2 allows the  amount of any reversal of a write-down to
FIFO or weighted average cost formulas. [IAS 2.25] NRV and the circumstances that led to such
The LIFO formula, which had been allowed prior to reversal
the 2003 revision of IAS 2, is no longer allowed.
 carrying amount of inventories pledged as
The same cost formula should be used for all security for liabilities
inventories with similar characteristics as to their
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  cost of inventories recognised as expense
(cost of goods sold).

IAS 2 acknowledges that some enterprises classify

income statement expenses by nature (materials,
labour, and so on) rather than by function (cost of
goods sold, selling expense, and so on). Accordingly,
as an alternative to disclosing cost of goods sold
expense, IAS 2 allows an entity to disclose operating
costs recognised during the period by nature of the
cost (raw materials and consumables, labour costs,
other operating costs) and the amount of the net
change in inventories for the period). [IAS 2.39] This
is consistent with IAS 1 Presentation of Financial
Statements, which allows presentation of expenses by
function or nature.

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