Question

Edit question What are the types of property, plant, and equipment? How are these initially measured. What is considered when deciding whether to expense or capitalize an expenditure. What are the accounting procedures for subsequent expenditures and depreciation of an asset. What are the required disclosures for property, plant, and equipment? What are the various characteristics and types of intangible assets. Discuss accounting procedures for intangible assets including amortization, derecognition, and required disclosures. What are the categories of long-term operating assets tested for impairment. Discuss accounting procedures for impairments of assets with finite lives under U.S. GAAP. Compare and contrast accounting procedures for assets with finite lives to accounting procedures for assets with indefinite lives under U.S. GAAP and IFRS. What is goodwill. What are the accounting procedures for goodwill under U.S. GAAP versus IFRS. What are the required disclosures for impaired assets?

Answer 1

IAS 16 Property, Plant and Equipment outlines the accounting treatment for most types of property, plant and equipment. Property, plant and equipment is initially measured at its cost, subsequently measured either using a cost or revaluation model, and depreciated so that its depreciable amount is allocated on a systematic basis over its useful life.

IAS 16 was reissued in December 2003 and applies to annual periods beginning on or after 1 January 2005.

An item of property, plant and equipment should initially be recorded at cost. [IAS 16.15] Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site (see IAS 37 Provisions, Contingent Liabilities and Contingent Assets). [IAS 16.16-17]

If payment for an item of property, plant, and equipment is deferred, interest at a market rate must be recognised or imputed. [IAS 16.23]

If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature), the cost will be measured at the 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. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. [IAS 16.24]

Measurement subsequent to initial recognition

IAS 16 permits two accounting models:

• Cost model. The asset is carried at cost less accumulated depreciation and impairment. [IAS 16.30]
• Revaluation model. The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably. [IAS 16.31]

An asset should be removed from the statement of financial position on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is the difference between the proceeds and the carrying amount and should be recognised in profit and loss. [IAS 16.67-71]

If an entity rents some assets and then ceases to rent them, the assets should be transferred to inventories at their carrying amounts as they become held for sale in the ordinary course of business. [IAS 16.68A]

If property, plant, and equipment is stated at revalued amounts, certain additional disclosures are required: [IAS 16.77]

• the effective date of the revaluation
• whether an independent valuer was involved
• for each revalued class of property, the carrying amount that would have been recognised had the assets been carried under the cost model
• the revaluation surplus, including changes during the period and any restrictions on the distribution of the balance to shareholders.