Ind AS 16 :

Property, Plant
and Equipment

By CA Rohit A Ranade
rohit@crca.in
Contents
• Disclosure Requirements
• Objective
• Principle Issues
• Definitions
• Recognition
• Measurement
• Accounting Effects
• Derecognition
Disclosure requirements
• The financial statements shall disclose, for each class of property, plant
and equipment:

• (a) the measurement bases used for determining the gross carrying
amount

• (b) the depreciation methods used

Objective :

To prescribe the accounting treatment for

property, plant and equipment
The principle issues

• The recognition of the assets,

• the
determination of their carrying
amounts
• the depreciation charges
• impairment losses to be recognised
Non Applicability
• Property, plant and equipment classified as held for sale in accordance
with Ind AS 105, Non-current Assets Held for Sale and Discontinued
Operations.
• Biological assets related to agricultural activity other than bearer plants
(See Ind AS 41, Agriculture). This Standard applies to bearer plants but it
does not apply to the produce on bearer plants.
• The recognition and measurement of exploration and evaluation assets
(see Ind AS 106, Exploration for and Evaluation of Mineral Resources).
• Mineral rights and mineral reserves such as oil, natural gas and similar
non-regenerative resources.
Definitions
• Carrying amount is the amount at which an asset is recognised after
deducting any accumulated depreciation and accumulated impairment
losses.
• 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 or, where applicable, the amount attributed to that asset
when initially recognised in accordance with the specific requirements of
other Indian Accounting Standards
• Depreciable amount is the cost of an asset, or other amount substituted for
cost, less its residual value.
• Depreciation is the systematic allocation of the depreciable amount of an
asset over its useful life.
Definitions…
• 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.
• An impairment loss is the amount by which the carrying amount of an asset
exceeds its recoverable amount.
• Recoverable amount is the higher of an asset’s fair value less costs to sell and
its value in use.
• The residual value of an asset is the estimated amount that an entity would
currently obtain from disposal of the asset, after deducting the estimated costs
of disposal, if the asset were already of the age and in the condition expected
at the end of its useful life.
• Useful life is:
• (a) the period over which an asset is expected to be available for use by an
entity; or
• (b) the number of production or similar units expected to be obtained from the
asset by an entity.
Recognition:
• The cost of an item of property, plant and equipment shall be recognised as
an asset if, and only if:

• (a) it is probable that future economic benefits associated with the item will
flow to the entity; and

• (b) the cost of the item can be measured reliably.

Measurement:
• An item of property, plant and equipment that qualifies for recognition as
an asset shall be measured at its cost
• Elements of cost
• Purchase price, duties and taxes paid on purchases less trade discounts.
• Costs incurred to bring the asset to its location, installation and commissioning
• Borrowing costs as regards self constructed assets till the completion of
construction.

• Measurement after recognition

• An entity shall choose either the cost model or the revaluation model as its
accounting policy and shall apply that policy to an entire class of property, plant
and equipment.
Models of Recognition
• Cost model
• After recognition as an asset, an item of property, plant and equipment shall 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 shall 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 shall 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.
• The frequency of revaluations depends upon the changes in fair values of the
items of property, plant and equipment being revalued.

• If an item of property, plant and equipment is revalued, the entire class of

property, plant and equipment to which that asset belongs shall be revalued.
Accounting Effects:
• If an asset’s carrying amount is increased as a result of a
revaluation, the increase shall be recognised in other comprehensive
income and accumulated in equity under the heading of revaluation
surplus. However, the increase shall be recognised in profit or loss to
the extent that it reverses a revaluation decrease of the same asset
previously recognised in profit or loss.
• If an asset’s carrying amount is decreased as a result of a
revaluation, the decrease shall be recognised in profit or loss.
However, the decrease shall be recognised in other comprehensive
income to the extent of any credit balance existing in the revaluation
surplus in respect of that asset. The decrease recognised 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 in relation to the total cost of the item
shall be depreciated separately.
• Depreciable amount and depreciation period
• The depreciable amount of an asset shall be allocated on
a systematic basis over its useful life.
• The residual value and the useful life of an asset shall be
reviewed at least at each financial year-end and, if
expectations differ from previous estimates, the change(s)
shall be accounted for as a change in an accounting
estimate in accordance with Ind AS 8, Accounting
Policies, Changes in Accounting Estimates and Errors.
Derecognition
• The carrying amount of an item of property, plant and
equipment shall be derecognised:
• (a) on disposal; or
• (b) when no future economic benefits are expected from
its use or disposal.

• The gain or loss arising from the derecognition of an item of

property, plant and equipment shall be included in profit or
loss
• Gains shall not be classified as revenue.
Questions ?
Let’s test your understanding:

• The amount of Depreciation in a financial statement

represents
1. The total amount of reduction in the value of asset
2. Expected reduction of value of asset
3. Estimate of loss on sale of an asset
4. Systematic Allocation of total depreciable amount of an
asset
• What will be the treatment of scheduled repairs done to a
plant.
1. Should be capitalised and added to the cost of plant
2. Should be expensed out
3. Should be deferred over the balance useful life of the
plant

• Amount paid to remove litigation on a property should be

1. Capitalised and added to the value of property
2. Should be shown as current asset in the balance sheet
3. Should be debited to profit and loss account.
Thank You !!
CA Rohit A Ranade
rohit@crca.in