 The objective of this Standard is to prescribe the

accounting treatment for property, plant and

equipment so that users of the financial
statements can discern information about an
entity’s investment in its property, plant and
equipment and the changes in such investment.
The principal issues in accounting for property,
plant and equipment are the recognition of the
assets, the determination of their carrying
amounts and the depreciation charges and
impairment losses to be recognized in relation to
them.
 Carrying amount is the amount at which an asset is recognized 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 recognized in
accordance with the specific requirements of other IFRSs, eg IFRS 2 Share-based
Payment.
 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.
 Fair value is the amount for which an asset could be exchanged between knowledgeable,
willing parties in an arm’s length transaction.
 An impairment loss is the amount by which the carrying amount of an asset exceeds its
recoverable amount.
 Property, plant and equipment are tangible items that:
 a. are held for use in the production or supply of goods or services, for rental to others,
or for administrative purposes; and
 b. are expected to be used during more than one period.
 Recoverable amount is the higher of an asset’s net selling price 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.
 7 The cost of an item of property, plant and
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
 15 An item of property, plant and equipment that qualifies for
recognition as an asset shall
 be measured at its cost.
 Elements of cost
 16 The cost of an item of property, plant and equipment comprises:
 a. its purchase price, including 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.
 c. the initial estimate of the costs of dismantling and removing the item
and restoring the site on which it is located, the obligation for which an
entity incurs either when the item is acquired or as a consequence of
having used the item during a particular period for purposes other than
to produce inventories during
 that period.

 17 Examples of directly attributable costs are:
 a. costs of employee benefits (as defined in IAS 19 Employee Benefits)
arising
 directly from the construction or acquisition of the item of property,
plant and equipment;
 b. costs of site preparation;
 c. initial delivery and handling costs;
 d. installation and assembly costs;
 e. costs of testing whether the asset is functioning properly, after
deducting the net proceeds from selling any items produced while
bringing the asset to that location and condition (such as samples
produced when testing equipment); and
 f. professional fees.

 19 Examples of costs that are not costs of an item of property, plant and
equipment are:
 a. costs of opening a new facility;
 b. costs of introducing a new product or service (including costs of
advertising and promotional activities);
 c. costs of conducting business in a new location or with a new class of
customer
 (including costs of staff training); and
 d. administration and other general overhead costs.
 29 An entity shall choose either the cost model in paragraph 30
or the revaluation model in paragraph 31 as its accounting policy
and shall apply that policy to an entire class of property, plant
and equipment.
 Cost model
 30 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
 31 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 balance sheet date.

 36 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


 39 If an asset’s carrying amount is increased as a result of a revaluation, the increase

shall be credited directly to 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.


 40 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 debited directly to
equity under the heading of revaluation surplus to the extent of any credit balance
existing in the revaluation surplus in respect of that asset


 Depreciable amount and depreciation period

 50 The depreciable amount of an asset shall be allocated on a systematic basis over its
useful life.
 51 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 IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
 55 Depreciation of an asset begins when it is available for use
 58 Land and buildings are separable assets and are accounted for separately, even when
they are acquired together
 59 If the cost of land includes the costs of site dismantlement, removal and restoration,
that portion of the land asset is depreciated over the period of benefits obtained by
incurring those costs.
 67 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.
 68 The gain or loss arising from the derecognition of an item of
property, plant and equipment shall be included in profit or loss
when the item is derecognised (unless IAS 17 requires otherwise
on a sale and leaseback). Gains shall not be classified as revenue.

 71 The gain or loss arising from the derecognition of an item of
property, plant and equipment shall be determined as the
difference between the net disposal proceeds, if any, and the
carrying amount of the item
 73 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;
 c. the useful lives or the depreciation rates used;
 d. the gross carrying amount and the accumulated depreciation (aggregated with
accumulated impairment losses) at the beginning and end of the period; and e. a
reconciliation of the carrying amount at the beginning and end of the period
showing:
 i. additions;
 ii. assets classified as held for sale or included in a disposal group classified as
held for sale in accordance with IFRS 5 and other disposals;
 iii. acquisitions through business combinations;
 iv. increases or decreases resulting from revaluations under paragraphs 31, 39
and 40 and from impairment losses recognised or reversed directly in equity in
accordance with IAS 36;
 v. impairment losses recognised in profit or loss in accordance with IAS 36;
 vi. impairment losses reversed in profit or loss in accordance with IAS 36;
 vii. depreciation;
List price XXX

Less trade discount <XXX>

Import duties and VAT non refundable XXX

Estimates of dismantling cost XXX

Employee benefit under construction of asset XXX

Installation charges XXX

Cost of testing less proceeds form sales XXX

Professional XXX

Other directly attributable cost XXX

Freight in XXX
List price 150000
Less trade discount 5000
Import duties 2500
VAT refundable 1000
Estimates of dismantling cost 25000
Employee benefit under construction of asset 5000
Installation charges 1500
Site preparation cost 20000
Interest charges paid to supplier 1500
Professional fees 4000
Damages during installation cost of repair 1500
Freight in 2000
Useful life 5 yr
 Straight line method : Cost – scrap value
/useful life
 Reducing balance method :carrying value *per
 Sum of year digit method: Depreciable
amount *fraction n<n+1>/2
 Service hour method: depreciable
amount/total hours *hour during year
 Production unit method: depreciable
amount/total production unit *unit produce
 alright co acquired new plant which has initial
cost of 205000 and scrap value of 5000
having estimated useful life of 5 years.
Company policy is to deprecate asset using
straight line method.
 REQ: SOCI and SOFP Extract for five years.
Period Computation Deprecation A.Dep C.v

1 205000-5000/5 40000 40000 165000

2 205000-5000/5 40000 80000 125000

3 205000-5000/5 40000 120000 85000

4 205000-5000/5 40000 160000 45000

5 205000-5000/5 40000 200000 5000

 XYZ co acquired new plant which has initial
cost of 805000 and scrap value of 5000
having estimated useful life of 5 years.
Company policy is to deprecate asset using
straight line method.
REQ: SOCI and SOFP Extract for five
years.
Period Computation Deprecation A.Dep C.v
 alright co acquired new plant which has initial
cost of 205000 and scrap value of 5000
having estimated useful life of 5 years.
Company policy is to deprecate asset using
Reducing balance method.
 REQ: SOCI and SOFP Extract for five years.
Period Computation Deprecation A.Dep C.v
 xyz company acquired building for PKR 5m
having useful life of 50 year company use
reducing balance method 20 % deprecation
charge.

 Calculate depreciation charge for 25th year

N.B.V=Cost*<1-%>^n
 Q ample acquired office furniture for PKR
500,000 on 30 june 2009 company policy is
to depreciate on straight line method use ful
life of asset is 5 year and scrap value of
50,000

 Req: Compute extract for comprehensive

income and financial position
Period Computation Deprecation A.Dep C.v
 68 The gain or loss arising from the
derecognition of an item of property, plant and
equipment shall be included in profit or loss
when the item is derecognized (unless IAS 17
requires otherwise on a sale and leaseback).
Gains shall not be classified as revenue.

 71 The gain or loss arising from the
derecognition of an item of property, plant and
equipment shall be determined as the difference
between the net disposal proceeds, if any, and
the carrying amount of the item
 38 Prospective recognition of the effect of a change in an
accounting estimate means that the change is applied to
transactions, other events and conditions from the date of the
change in estimate. A change in an accounting estimate may
affect only the current period's profit or loss, or the profit or loss
of both the current period and future periods. For example, a
change in the estimate of the amount of bad debts affects only
the current period's profit or loss and therefore is recognized in
the current period. However, a change in the estimated useful
life of, or the expected pattern of consumption of the future
economic benefits embodied in, a depreciable asset affects
depreciation expense for the current period and for each future
period during the asset's remaining useful life. In both cases, the
effect of the change relating to the current period is recognized
as income or expense in the current period. The effect, if any, on
future periods is recognized as income or expense in those
future periods
 Company acquire an asset costing 820,000
having Scrap value of 20000 with useful
economic life of four year at end of 2nd year it
was decided that useful economic life of asset
is five year <remaining use full life is three
years>

 Prepare balance sheet and Pnl Extract for Five
years.
Period Computation Deprecation A.Dep C.v
 Q Z n CO acquire machinery costing 700000
on 1.1 X8 with scrap value of 20,000
company adopt reducing balance method and
20% was charged till 31.12X9 and it was
decided to charged 30%

 Prepare Balance sheet and Income statement
Extract for 31.12.X10
Period Computation Deprecation A.Dep C.v

 Q Z n CO acquire machinery costing 700000
on 1.1 X8 with scrap value of 20,000 useful
life of machinery was 5 years company adopt
reducing balance method and 20% was
charged till 31.12X9 .it was decided to use
straight line method

 Prepare Balance sheet and Income statement
Extract for five year
Period Computation Deprecation A.Dep C.v

 General principles
 IAS 16 allows entities the choice of two valuation models
for PPE – the cost model or the revaluation model. Each
model needs to be applied consistently to all PPE of the
same ‘class’. A class of assets is a grouping of assets that
have a similar nature or function within the business. For
example, properties would typically be one class of assets,
and plant and equipment another. Additionally, if the
revaluation model is chosen, the revaluations need to be
kept up to date, although IAS 16 is not specific as to how
often assets need to be revalued. When the revaluation
model is used, assets are carried at their fair value,
defined as ‘the amount for which an asset could be
exchanged between knowledgeable, willing parties in an
arm’s length transaction
 Revaluation model
 31 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 balance sheet date
 39 If an asset’s carrying amount is increased as a
result of a revaluation, the increase shall be
credited directly to equity under the heading of
revaluation surplus
S.No Description Debit Credit
N.C.A(bal) XXX
A.Dep XXX
Revaluation reserve XXX

Revaluation Reserve
Fair Value XXX
Less: Carrying Value (XXX)
Excess Amount XXX
 Company revalue asset which has original
cost of $500000 with A.Dep of $300000 at
that date fair value of asset was $700000.
 Req: Revaluation Entry.
S.No Description Debit Credit
N.C.A(bal)
A.Dep
Revaluation reserve

Revaluation Reserve
Fair Value
Less: Carrying Value
Excess Amount

 Q> H.Z acquire an asset for PKR 520,000 on
1.1X9 having scrap value of 20,000 and
useful life of 5 years. Company use straight
line method at end of 31.12.X10 Asset has
Fair value of 540,000.
 Prepare PnL and balance sheet extract

 40 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 debited directly to equity
under the heading of revaluation surplus to
the extent of any credit balance existing in
the revaluation surplus in respect of that
asset

 EXAMPLE 1
 A property was purchased on 1 January 20X0 for $2m (estimated
depreciable amount $1m useful economic life 50 years). Annual
depreciation of $20,000 was charged from 20X0 to 20X4 inclusive and
on 1 January 20X5 the carrying value of the property was $1.9m. The
property was revalued to $2.8m on 1 January 20X5 (estimated
depreciable amount $1.35m – the estimated useful economic life was
unchanged). Show the treatment of the revaluation surplus and compute
the revised annual depreciation charge.


 Solution
 The revaluation surplus of $900,000 ($2.8m - $1.9m) is recognised in
the statement of changes in equity by crediting a revaluation reserve.
The depreciable amount of the property is now $1.35m and the
remaining estimated useful economic life 45 years (50 years from 1
January 20X0). Therefore, the depreciation charge from 20X5 onwards
would be $30,000 ($1.35m x 1/45).A revaluation usually increases the
annual depreciation charge in the income statement. In the above
example, the annual increase is $10,000 ($30,000 - $20,000). IAS 16
allows entities to make a transfer of this ‘excess depreciation’ from the
revaluation reserve directly to retained earnings


 Land and building Plant and Fixtures and fitting
Equipment

Cost

Opening Bal XXX XXX XXX

Additions XXX XXX XXX

Revaluation XXX XXX XXX

Disposal (XXX) (XXX) (XXX)

Closing Bal XXX XXX XXX

 Land and building Plant and Fixtures and fitting
Equipment

A.dep

Opening Bal XXX XXX XXX

Depreciation XXX XXX XXX

Revaluation (XXX) (XXX) (XXX)

Disposal (XXX) (XXX) (XXX)

Closing Bal XXX XXX XXX