A presentation on Property, Plant & Equipment (PPE)-IAS 16, Prepared by a few students of Dept. of Accounting & Info. Systems, Jahangirnagar University, Savar, Dhaka

1. IAS 16
Property,
Plant &
Presentation on…

2. Presented by …Presented by …
 M.K.Jahid Shuvo
 SaidurRahman
 Md. KabirHasan
 Hasan Shah Ripon
 Md. Ruhul Amin
 Masum Rana
Dept. of Accounting & Info. Systems
Jahangirnagar University
Savar, Dhaka

3.  Objectives
 Scope of the standard
 Definitions regarding PPE
 Recognition of PPE
 Subsequent costs
 Measurement after recognition- Cost model & Revaluation model
 Depreciation procedure
 Impairment
 Derecognition
 Presentation & Disclosure
 Summary

4. Objectives:
 Timing of the recognition of assets
 Determination of assets carrying amounts using both the cost model
and the revaluation model
 Depreciation charges and impairment losses to be recognized
 Disclosure requirements

5. Scope of the standard:
This standard applies in the accounting for elements of tangible fixed
assets, except when another International Accounting Standard requires
or permits a different accounting treatment.

6. Scope of the standard:
This standard does not apply to-
Property ,plant & equipment that is for sale
Biological assets related to agricultural activity
Mineral rights and mineral reserves

7. Definition : Property, plant & Equipment (PPE)Definition : Property, plant & Equipment (PPE)
Property Plant and Equipment defines Property Plant and
Equipment as tangible assets that-
1) are held for use in the production or supply of goods or services, for
rental to others, or for administrative purposes; and
2) are expected to be utilized in more than one period.

8. Other important definitions:
Cost:
Cost is the amount of cash or cash equivalent paid to acquire an asset at the time of its
acquisition and construction.
Fair Value:
Fair value represents the present market price of an asset.

9. Other important definitions:
Carrying amount:
Carrying amount is the amount at which an asset is recognized after deducting any
accumulated depreciation or losses.
Formula:
Carrying amount = Acquisition cost – Accumulated depreciation

10. Recognition : Property, Plant & Equipment (PPE)Recognition : Property, Plant & Equipment (PPE)
An item of Property, Plant & Equipment that qualifies for recognition as an asset shall
be measured at its cost.
Elements of Cost:
 Its purchase price and duties paid.
 Directly attributable costs.
 Initial estimate of the cost of dismantling and removing the item and restoring the
site.
 Materials, labor and other inputs for self constructed assets.

11. The cost of Property, Plant & Equipment shall be
recognized 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.

12. Costs NEVER to be Capitalized
 Costs of opening new facility;
 Costs of introducing new product or service;
 Costs of conducting business in new location or with new class of
customer;
 Administration and other general overhead costs;
 Costs incurred in using or redeploying an item;
 Amounts related to certain incidental operations.

13. Additional costs are incurred after the asset becomes operational is
called subsequent costs.
Example of this cost includes-
 Expense day-to-day servicing cost.
 Capitalize replacement or renewal components and major inspection
costs.

14. Subsequent MeasurementSubsequent Measurement
Revaluation
Depreciate revalued
amount over useful life
Depreciate cost
over useful life
Revaluation ModelCost Model

15. Cost Model :
Carrying amount is-
At cost
Less
any accumulated Depreciation
less
any accumulated impairment losses

16. Revaluation Model :
Carrying amount is-
Fair value
less
subsequent accumulated depreciation
less
subsequent accumulated impairment losses

17. Depreciation :
Depreciation :
Depreciation is the systematic allocation of the depreciable amount of an asset
over it’s useful life.
Residual value :
Residual Value of an asset is the estimated amount that an entity would
currently obtain from disposal of the asset, after deducting the estimated cost of
disposal.
Depreciable amount is the cost of an asset or the amount that has replaced it,
less its residual value.
Depreciable amount :

18. Depreciation methods:
1.Straight line method
2. Sum of the years digits method
3. Double declining balance method
4. Units of production method

19. Straight line depreciation method :
 Assumes uniform consumption pattern of economic benefits
 The depreciation expense:
Depreciable amount
Estimated useful life
= Depreciation expense
* Depreciable amount = Cost – Salvage Value

20. Sum-of-the-Years’-Digits method
Each fraction uses the sum of the years as a denominator (5 + 4 + 3 + 2 + 1 = 15). The
numerator is the number of years of estimated life remaining as of the beginning of the
year.
Alternate sum-of-the-years’ calculation,
n(n+1)
2
==
5(5+1)
2
= 15

21. Double declining method :
 Double declining depreciation rate is a fixed percentage which is
equal to double of the straight line rate.
 If the straight line rate is 20% then twice of the straight line rate
would be 40% that is double declining rate.

22. Units of production method :
 Units of production method measures the amount of depreciation dividing the
total estimated units by total estimated hours.
 Here the total estimated hours is identified by subtracting salvage value from
cost multiplying specific working hours.
(Cost – Salvage value) X Hours this year
Total estimated hours
= Depreciation charge

23. Impairment : Definition
An impairment is the amount by which the carrying amount of an asset exceeds
its recoverable amount. Recoverable amount is the higher of an asset’s net
selling price and its value in use.
When impairment occurs-
Significant decrease in the market value of an asset
Significant changes in the usage of an asset
The significant adverse effects of climate change in the value of an asset

24. Asset exchange transactions:
Assets are exchanged for two reasons-
1. Acquired asset will be measured at fair value
2. Given up asset will be measured at carrying amount

25. Acquired asset will be measured at fair value if:
Exchange has commercial substance.
Fair value of the asset acquired can be measured reliably.

26. Acquired asset will be measured at carrying amount of the
asset given up if:
Exchange lacks commercial substance.
Fair value of the asset acquired can not be measured reliably.

27. Derecognition:
When no future benefits expected from use or disposal-
Difference between carrying amount and net disposal proceeds
recognised as gain/loss in profit or loss.
Gains not classified as revenue
Consideration receivable measured at fair value

28. Presentation and disclosure:
Measurement basis-
 Depreciation methods
 Useful lives or depreciation rates
 Gross carrying amount and accumulated depreciation at beginning and end of period
 Reconciliation at beginning and end of period showing:
 Comparative information required

29. Residual values
Estimated cost of removing or restoring items
Useful lives
Depreciation methods
Disclosure of the nature & effectiveness of change in Accounting
estimate with respect to-

30. At the revaluation of PPE , the followings must be disclosed:
 Effective date of revaluation
 Independent valuator involvement
 Methods and significant assumptions applied
 Carrying amount should be recognized under cost model
 Revaluation surplus

31. Summary:
 Clear concept view of IAS 16 which is about PPE.
 Helps us to know about different constitutional terms of accountancy
 Provides help to prepare financial statement which is internationally
granted
 Removes confusions that arises among the accountants about
different accounting terms and conditions.
 Measures properly the financial position of the organization.
 It helps to implement the rules and regulations in the practical field

32. Thanksto
all…

33. Any Questions…