IAS 16 – Property, Plant, Equipment
Objective: To prescribe the principles for the recognition for property, plant, and equipment.
Property, plant, and equipment should be recognized as assets when it is probable that the future economic benefit from the assets will flow to the entity. Property, plant and equipment recognition at cost, which includes all costs necessary to get the asset ready for intended use. IAS 16 allows a choice of two accounting model as describe:
(1) Cost model – under the cost model the asset shown at cost less accumulated depreciation and impairment.
(2) Revaluation model – under the revaluation model the assets shown at fair value at the balance sheet date less subsequent depreciation.
Under the revaluation model, revaluations must be done regularly; all items of a given class must be revalued. Revaluation increases are credit to "equity Revaluation decreases", charge first against the revaluation surplus in equity, and any excess against profit and loss.
Under the cost model, components of an asset must be depreciated separately, Also under the cost model depreciation must review at least annually and assessed under IAS 36 – Impairment, and if an assets requires inspection, such as aircraft, when each major inspection is preformed.
All exchanges of property, plant, and equipment should be measured at fair value, including exchanges of similar items.
Disclosures include: accounting policies, depreciation methods, live acquisition and disposals, impairments, amount and detail of revaluations.
The Differences and Similarities between US GAAP Law and IFRS
Similarities: In both US GAAP and IFRS property, plant, and equipment is recognized at cost, further cost include all expenditure directly attribute to bring the asset to the location and working condition for its intended use, and include dismantling and removing the assets and restoring the site. Also in both US GAAP and IFRS Property, Plant, and Equipment is depreciated over its useful life but not if it is held for sale. When in both US GAAP and IFRS changes to existing asset of restoration are added to the cost and depreciated prospectively over its remaining useful life. At last in both IFRS and US GAAP compensation for loss or impairment cannot be offset against the carrying amount of the asset lost or impaired.
Similarities:
Assets held for sale: under both standard US GAAP and IFRS asset held for sale will show as current assets, and measured at lower of carrying amount or fair value less cost to sell, Asset held for sale do not depreciated and presented separately on the balance sheet.
Significant Differences:
IFRS | US Law GAAP | |
Property, plant and equipment may be revalued to fair value, if fair value can be measured reliably. All items in the same class are revalued at the same time, and revaluations are kept up to date. | Unlike IFRS revaluation of property, plant and Equipment is not permitted. | Revaluations of asset |
Estimate of useful life, and the method of depreciation are reviewed at least each annual reporting date, and any changes account for as change in estimate. | Unlike IFRS Estimate of useful life, and the method of depreciation are reviewed only when events or changes in circumstances indicate that the method of depreciation is no longer appropriate Like IFRS any changes account for as change in estimate. | changes in estimate of useful life, or method of depreciation. |
When an item of property, plant and equipment have different depreciation methods or rate, It is necessary for each component to be depreciated separately. | Unlike IFRS component accounting is permitted but not required. | Use of Component accounting in Depreciation |
Cost that represent a replacement of a previously component of an asset are capitalize (add to the cost) only if future economic benefits are probable and the cost can be reliably measured. | Unlike IFRS there is option between (1) accounting model evolved in practice, capitalize cost are written of through depreciation through the date of the next overhaul (2) follow the IFRS approach | Cost of major overhaul |
Investment property is separately defined in IAS 40 | Investment property is accounted for as held for sale (in current assets) or held for use (in long term assets) | Investment property |
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