Section 17

Overview
• Scope
• Definition
• Recognition
• Initial Measurement
• Measurement after Initial Recognition
• Property, Plant and Equipment Held for Sale
• Derecognition
• Disclosure
• Differences between IFRS for SMEs and Full IFRS
 Scope
• This section applies to accounting for property,
plant and equipment and investment property
whose fair value cannot be measured reliably
without undue cost or effort.
 Definition

More
Held than
Tangible PPE
for use one
period
 Definition
Property, plant and equipment's are held for use
in the
Production

Supply of goods or services

For rental to others

For administrative purposes

 Recognition
• An entity shall apply the recognition criteria in
paragraph 2.27 in determining whether to
recognize an item of property, plant or
equipment. Therefore, the entity shall recognize
the cost of an item of property, plant and
equipment 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.
 Recognition
• Spare parts and servicing equipment are
usually carried as inventory and recognized in
profit or loss as consumed.
• However, major spare parts and stand-by
equipment are property, plant and equipment
when an entity expects to use them during
more than one period.
 Special Issues
• Major or strategic spare parts and back up assets
• Parts which require regular replacements
• Major parts with significantly different patterns
of consumption.
• Dismantling, removing, or restoring obligation
• Major inspections.
• Separation of land and buildings.
 Recognition
• Parts of some items of property, plant and
equipment may require replacement at regular
intervals (eg the roof of a building).
• An entity shall add to the carrying amount of
an item of property, plant and equipment the
cost of replacing part of such an item when
that cost is incurred if the replacement part is
expected to provide incremental future
benefits to the entity.
 Recognition
• The carrying amount of those parts that are
replaced is derecognized.
• Land and buildings are separable assets, and
an entity shall account for them separately,
even when they are acquired together.
 Initial Measurement

An entity shall measure an item of

property, plant and equipment at
initial recognition at its cost.
 Initial Measurement
• The cost of an item of property, plant and
equipment is the cash price equivalent at the
recognition date.
• If payment is deferred beyond normal credit
terms, the cost is the present value of all future
payments.
 Elements of cost
(a) its purchase price, including legal and brokerage fees,
import duties and non-refundable purchase taxes, after
deducting trade discounts and rebates.
(b) any costs directly attributable to bringing the asset to the
location and condition necessary for it to be capable of
operating in the manner intended by management.
• site preparation
• initial delivery and handling,
• installation and assembly, and testing of functionality.
(c) the initial estimate of the costs of dismantling and removing
the item and restoring the site on which it is located.
 Cost excludes
recognize them as an expense when they are incurred:
Costs of opening a new facility.

Costs of introducing a new product or service

Costs of staff training

Administration and other general overhead costs.

Borrowing costs
 Cost excludes

The income and related expenses of

incidental operations during
construction or development of an
item of property, plant and equipment
are recognized in profit or loss if those
operations are not necessary to bring
the item to its intended location and
operating
condition.
 Exchanges of Assets
• An item of property, plant or equipment may be
acquired in exchange for a non-monetary asset or assets,
or a combination of monetary and non-monetary assets.
• An entity shall measure the cost of the acquired asset at
fair value unless
(a) the exchange transaction lacks commercial substance
or
(b) the fair value of neither the asset received nor the asset
given up is reliably measurable.
In that case, the asset’s cost is measured at the carrying
amount of the asset given up.
 Measurement after Initial Recognition

An entity shall measure all items of property,

plant and equipment after initial recognition at
cost less any accumulated depreciation and any
accumulated impairment losses or Revaluation
Model.
 Depreciation

If the major components of an item of

property, plant and equipment have
significantly different patterns of
consumption of economic benefits, an
entity shall allocate the initial cost of
the asset to its major components and
depreciate each such component
separately over its useful life.
 Depreciation
• The depreciation charge for each period shall
be recognized in profit or loss.
• Unless another section of this IFRS requires
the cost to be recognized as part of the cost of
an asset.
 Depreciation
• Depreciation of an asset begins when it is
available for use.
• Depreciation of an asset ceases when the asset
is derecognized.
 Depreciation
• Only re-assess the residual value, depreciation
method, or useful life if an indicator of change
has been identified.
• Factors such as a change in how an asset is
used, significant unexpected wear and tear,
technological advancement, and changes in
market prices may be considered as an
indicator.
 Depreciation Methods
• An entity shall select a depreciation method
that reflects the pattern in which it expects to
consume the asset’s future economic benefits.
The possible depreciation methods include the
.

Straight-line Diminishin Based on

method g balance usage
 Depreciation Methods

• The depreciation method used is not a free

choice. The depreciation method chosen is that
which best matches the benefits. Furthermore,
this might not be the same method as allowed
for tax purposes.
 Impairment
• At each reporting date, an entity shall apply
Section 27 Impairment of Assets to determine
whether an item or group of items of property,
plant and equipment is impaired and, if so,
how to recognize and measure the impairment
loss.
 Compensation for impairment
• An entity shall include in profit or loss
compensation from third parties for items of
property, plant and equipment that were
impaired, lost or given up only when the
compensation becomes receivable.
 Property, Plant and Equipment Held for
Sale
• A plan to dispose of an asset before the
previously expected date is an indicator of
impairment that triggers the calculation of the
asset’s recoverable amount for the purpose of
determining whether the asset is impaired.
 Derecognition
• PPE must be derecognized when it is no longer
controlled (i.e., disposed of) or does not meet
the recognition criterion of probable future
economic benefits.
An entity shall derecognize an item of PPE when
either of the following occurs:
• (a) on disposal, or
• (b) when no future economic benefits are
expected from its use or disposal.
 Derecognition
• A gain or loss on derecognition of PPE is
recognized in profit or loss.
• Such a gain or loss must not be classified as
revenue.
• If the amount is material, it may be necessary
to disclose the amount separately in the notes
or presented separately on the face of the
statement.
 Disclosure
• Disclose for each class of PPE:
• The measurement bases used for determining the gross
carrying amount
• The depreciation methods used
• The useful lives or the depreciation rates used
• The gross carrying amount and the accumulated
depreciation (aggregated within accumulated impairment
losses) at the beginning and end of the reporting period
• The existence and carrying amounts of PPE to which
the entity has restricted title, or that is pledged as
security for liabilities
 Disclosure
• A reconciliation of the carrying amount at the beginning
and end of the reporting period (this reconciliation need
not be presented for prior periods), showing separately
• Additions
• Disposals
• Acquisitions through business combinations
• Transfers to investment property if a reliable measure of
fair value becomes available
• Impairment losses recognized or reversed in profit or loss
• Depreciation
• Other changes
 IFRS for SMEs and Full IFRS
IFRS for SMEs Full IFRS
• No scope exclusion for PPE • Scope exclusion for PPE held
held for sale and exploration for sale and exploration and
and evaluation assets. evaluation assets.
• Applies to PPE and investment • Only applicable to PPE.
property whose fair value Investment property carried at
cannot be measured cost is depreciated by
• The cost of any replacement following the principles in IAS
part is capitalized if the 16 and not reclassified.
replacement part is expected to • Capitalization of replacement
provide incremental future parts are based on the normal
benefits. recognition criteria.
• Borrowing costs are not • Borrowing costs are
capitalized. capitalized.
 IFRS for SMEs and Full IFRS
• Only the cost model is applied. • The cost or revaluation model
• Re-assessment is only is applied.
applicable when there is an • Annual re-assessment of the
indication of changes in the residual value, depreciation
residual value, depreciation method, or useful life of an
method, or useful life of an item of PPE is required.
item of PPE.
• A plan to dispose of an asset • Non-current assets held for sale
before a previous expected date are classified separately limited
is an indication of impairment. to the fair value less cost to
• Less disclosure requirements. sell.

• More disclosure requirements