Практика Shadowing: IAS 16 Property, Plant & Equipment Explained (applies in 2026) + FREE Compliance Checklist - Изучайте разговорный английский с YouTube

Long-term assets represent one of the most significant items in the financial statements

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Long-term assets represent one of the most significant items in the financial statements

and in international financial reporting IS16 governs this area and in this video I will show you the basics.

I am Sylvia of cpdbox.com,

the website full of free articles,

video lectures, excel files and are useful materials on various topics especially IFRS.

You can learn with us from scratch you can get to very advanced level get your cpd certificates

and if you're stuck then we can help with the advice

so is 16 property plan

and equipment is quite an old standard issued in 1982 for the first time with many later amendments

and improvements its main objective is to prescribe the accounting for items of property plan

and equipment and i would say that there are two many issues with PPE.

Number one, what is property plan and equipment?

And this includes its definition.

So we will learn how to define property plan and equipment.

Because some items might appear as such,

but they are not PPE,

but the expense or something else.

And then recognition.

So when or at what point of time you can show property plan and equipment in your balance sheet.

Issue number two is how much.

So how you need to determine the carrying amount of property plan and equipment in your books and what depreciation to charge.

And I'm sure that there are many more questions around property plan and equipment,

but these are the main ones.

So property plan and equipment are tangible assets

that are held by the entity for the use in the production or supply of goods or services,

or for rental to others,

or for administrative purposes, and are expected to be used during more than one period.

Here I'd like to point out that if the building is used for rental purposes,

then IAS 40 investment property might apply instead of IAS 16,

so just bear that in mind.

Here the rental purpose relates more to other items like vehicles or machines.

in order to recognize the property plan

and equipment as an asset both of the following must be fulfilled first it must be probable

that the future economic benefits associated with the asset will flow to the entity

and it means that the enterprise will receive rewards from the usage of an asset

and on the other hand it will carry risks associated with the asset for example repairs

Here i'd like to address very common issue of control asset is a resource controlled by the entity

if you do not control it you cannot recognize it just

as an example imagine you own a safari park in

which animals are free to move in

or move out unless you control the animals somehow they are not your asset despite the fact

that they generate benefits for you

because visitors come to the park to see the animals

but still if you do not control the animals you cannot recognize them as your asset

the second condition the cost of the asset must be reliable measurable

so if you cannot measure it then you cannot account for it as an asset

and these two conditions apply both for initial costs and costs incurred after initial recognition or subsequent costs.

Please be careful here, because some assets do qualify for recognition as an asset,

although do not bring future economic benefits directly,

for example, water cleaning station and similar assets.

This might be required by the law for safety or environmental reasons to operate other assets,

so shall be recognized as an asset too.

In relation to subsequent costs,

some assets require regular major inspections like overhauling, replacement of major parts.

All of these shall be included in the carrying amount of an item, although incurred subsequently.

Now, let's take a look at how property plan and equipment should be measured at its recognition,

so when you account for it for the first time.

It shall be measured at cost which comprises of purchase price

and this price may include any import duties and non-refundable taxes

but shall be expressed net after deducting any rebates or discounts

then costs directly attributable to bringing the asset to the location

and condition for its planned operation so these include for example site preparation costs initial delivery and handling professional fees,

capitalized interest, testing and similar items.

And finally, the initial estimate of costs for dismantling and removing the asset or restoring the site where the asset is located,

so if the entity is obliged to do so.

Typical example is nuclear power plant where its owner has usually an obligation to decommission the power plan

and restore the site after decommissioning.

The cost of an item of property plan and equipment is the cash price equivalent at the recognition date.

So, if the payment for the asset is postponed to the later date,

this amount shall be discounted and the difference between the future payment and cash price equivalent is the interest.

If an item is acquired in exchange for other non-monetary asset,

then it shall be initially measured at fair value.

Now let's take a look how the item of property plan and equipment shall be treated after its recognition,

that is in the subsequent periods.

IAS 16 prescribes two basic models.

The first one is the cost model

and under this model an item of property plan and equipment shall be carried at its cost,

less accumulated depreciation

and less any accumulated impairment losses in line with is 36

the second model is revaluation model where an item of property plan

and equipment is carried at its revalued amount which is fair value at the date of revaluation

less any subsequent accumulated depreciation less any subsequent accumulated impairment losses

and here assets shall be revalued with sufficient regularity so like each three or five years

accounting treatment of revaluations depends on whether the carrying amount of an asset is decreased

or increased so

when the carrying amount is increased then the increase should be credited to equity under the heading revaluation surplus well

but if the same asset was impaired before

and impairment loss was recognized to profit

or loss then increase of carrying amount shall be credited to income to the extent of reversal of such impairments.

Decrease in carrying amount shall be debited to expenses in profit or loss,

but analogically, if the asset was previously revalued to revaluation surplus,

then the decrease in carrying amount shall be debited to equity to the extent of reversing such revaluation surplus.

Now, let's talk a little bit about depreciation because its principles enter into both models.

depreciation is allocation of depreciable amount over its useful life on systematic basis

and this definition contains three main parameters depreciable amount useful life

and systematic basis under cost model depreciable amount is simply items cost less its residual value

so residual value is any amount

that you can obtain from the asset at the end of its useful life less estimated cost of disposal.

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So, something like a selling price that you assume to receive.

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Useful life is the period over which an asset is expected to be available for use by an entity or alternatively,

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it is also the number of production units expected to be obtained from the asset by the entity.

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So, an asset might be depreciated either based on time or based on number of units produced.

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Useful life depends on many factors such as expected wear and tear,

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legal or technical limits, etc. The third element,

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systematic basis, is nothing else than the selection of appropriate depreciation method,

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for example, straight line, diminishing balance,

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or number of units, what have you.

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Useful life, residual value, and depreciation method should be reviewed at least at financial year-end seeking for any change.

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And if there is a change,

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it should be accounted for as a change in accounting estimate in line with IIS 8.

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It means prospectively with no restatement of previous periods.

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Depreciation shall be recognized as debit expenses and credit property plan and equipment.

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But sometimes when you use the asset for production of other assets,

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the depreciation is debited to the cost of another asset like

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inventories the last topic to cover in this video is the recognition of property plan

117

and equipment so carrying amount of property plan

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and equipment shall be de-recognized on disposal that is when you sell the asset

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enter into the finance lease as a lessor or you donate the asset

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or the asset shall be also they recognize

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when no future economic benefits are expected from its use

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or disposal and when the item of property plan

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and equipment is disposed gain or loss may arise

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which is calculated as net disposal proceeds less any carrying amount of property plan

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and equipment gains or losses from disposals of property plan

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and equipment are included in profit or loss

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but not as revenue right rather these are shown as a gain from sale of ppe

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if you like to learn more please visit our website cpdbox.com subscribe to our free newsletter

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and explore tons of other materials we have also great q a on this topic dealing with many different glitches

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and twists in accounting for property plan and equipment

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because this is a huge topic so i am really inviting you to join us on cpdbox.com.

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Thanks for watching.

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