IV Semester M.Com

1. PROPERTY, PLANT AND EQUIPMENT
IND AS 16
Mr. Sathish .V
Assistant Professor
PES Institute of Advanced Management Studies
NH-206, Sagar Road Shivamogga

2. PROPERTY PLANT AND EQUIPMENT – IND AS 16 /AS 10 FIXED
ASSETS
Meaning of PPE:
PPE are tangible items and which are held for use in production or supply of
goods and services or held for giving it on rent to others or using for
administrative purposes and which has expected life period of more than one
year or be used in more than one period.

3. OBJECTIVE OF THE STANDARD
To prescribe the accounting treatment for PPE – When you purchase the PPE how
to initially recognize in your books of accounts and how to account for it.
Principle Issues:
When can you recognize PPE as an asset in your Books of accounts?
When can you capitalize expenditure on PPE as on asset in your books of accounts?
SCOPE
It applies to all kinds of tangible property, plant and equipment.
Except Certain assets even though they may satisfy the definition of PPE are outside the
scope of the standard.
•Assets held for Sale and Assets of Discontinued Operations (Ind AS 2) – Principle cost of
the asset recovered by sale but not by using it.
•Biological Assets other than bearer plant (Ind AS 41) –any living plant and animal are not
covered.
•Expenses on Assets for Exploration and Evaluation of Mineral Resources (Ind AS 106) –
for Example searching of coal deposit after receiving rights from Government –Technical
possibility and commercial viability. These costs covered under Ind as 106.
•Mineral Right and Mineral, oil and natural gas reserves.

4. Bearer plant
For example Apple tree or wine yards which are capable of generating
income for more than one year and future economic benefit also flows from
them, hence accounting for bearer plant covered by PPE 16.

5. RECOGNITION PRINCIPLE
Cost of Property, plant and Equipment (PPE) shall be recognized if it is:
• Probable that future economic benefit will flow to entity, and
• Cost can be measured reliably.
 Spare parts, Stand-by equipments and servicing equipments are recognized, only when they
meet above definition of PPE. Otherwise, they are classified as inventory.
COMPONENT BASED ACCOUNTING
Components of assets having Substantial Value and different useful life should be recorded as
separate asset and depreciated separately from the main asset of which it is part. However,
depreciation rate and method may be same but accounting shall be separate. for example
computer hardware and software.
 Schedule II of Companies Act, 2013 also mandates Component Based Accounting.
INITIAL COST FOR RECOGNITION
Property, plant and Equipment (PPE) shall be measured at cost or fair value paid for acquiring an
asset, which includes:
• Purchase Price+ Import Duty + Non-Refundable Taxes + Costs directly attributable + Initial
Cost of dismantling and removing the item, if entity has an obligation that it Incurs on
acquisition of asset (-) Discounts and Rebates.

6. Initial Cost of dismantling and removing the item – if you are installing equipment which is harming
environment, in such cases environment laws and pollution control board requires you to dismantle the
asset ones it reaches end of useful life and it raises some costs. Since entity has to initially estimate
dismantling costs and such costs also can be capitalized.
Directly Attributable Costs - Costs which are incurred to bring the asset to present location. (E.g.
Employee cost, cost for site preparation, delivery and handling charges, professional fees, installation
and testing charges etc).
Cost of opening new facility, cost of introducing new product, advertising, and administration overheads
cannot be included in capitalization.
Self-Constructed Assets: if you only constructed an asset like machinery or building, in such cases total
cost of asset for construction needs to be considered as total cost (Material cost, any overhead). But
abnormal loss and any material loss or wastage of material cannot be capitalized.
SUBSEQUENT COST
• In case of regular Repair & Maintenance of PPE or day-to-day servicing of item, cost shall be recognized
in Statement of Profit & Loss.
• However, some parts of asset may require replacement at regular intervals. Also, items may be procured
to make less frequently recurring replacement. Cost of such replacing part may be recognized as asset if
recognition principle is met.
• But carrying amount of part that is replaced shall be de-recognized.
• Cost of any major inspection is recognized in the carrying amount of item of PPE as a replacement if
recognition criterion is satisfied.

7. EXCHANGE FOR NON-MONETARY ASSETS
Assets acquired by way for exchange of non-monetary assets or combination of monetary and
non-monetary assets shall be recognized at Fair Value of asset acquired, unless:
• Exchange transaction lacks commercial substance* or
• Fair value of neither asset acquired nor asset given up can be reliably measured
* Commercial substance is determined by considering the extent to which its future
cash flows are expected to change as result of transaction.
SUBSEQUENT MEASUREMENT
Subsequent measurement of PPE can be done by:
• By Cost Model; Or
• By Revaluation Model
The policy chosen shall apply to entire class of PPE.
• In case of Cost Model, PPE is carried at cost of asset acquired less accumulated depreciation
and accumulated impairment losses.(CA=HC-Accumulated DEP-AC Impairment Loss)
• In case of Revaluation Model, PPE is carried at Fair Value at date of revaluation less any
subsequent accumulated depreciation and accumulated impairment loss.
CA = Revalued amount – accumulated dep post revaluation – Accumulated Impairment
loss post revaluation

8. DEPRECIATION
• Depreciation is systematic allocation of depreciable asset over a useful life of asset.
• Each part of item of PPE with a cost that is Significant in relation to total cost of item shall be
depreciated separately. Entity shall allocate the amount initially recognized in respect of item
of PPE to its significant parts and depreciate each such part separately.
• Components of PPE having same useful life and depreciation method may be grouped in
determination the depreciation charge.
• Depreciation charge for each year shall be recognized in Profit & Loss, unless it is included in
carrying amount of another asset.
DE-RECOGNITION
Carrying amount of an item of PPE shall be recognized:
• On disposal, Or
• When no future economic benefits are expected from its use.
• Gain or loss arising from de-recognition shall be included in Profit & Loss. Gains, if any shall
not be classified as revenue.

9. Disclosures
• Measurement basis used for determining carrying amount
• Depreciation Methods used
• Useful lives or depreciation rates used
• Gross carrying amount and accumulated depreciation at beginning and end of year
• Reconciliation of carrying amount at the beginning and end of year
Disclosures related to Revalued Assets
• Effective date of revaluation
• Whether an independent valuer was involved
• Methods and significant assumptions applied in estimating fair values of items
• Extent to which fair values of items were determined directly by reference to observable
prices in active market
• Revaluation Surplus, indicating change for the period and any restriction on distribution of
balance to shareholders