Ind AS-16

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• Ind AS-16
• Property, Plant and Equipment
• by
• CA, D.S. Rawat
• Partner, Bansal Co.

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Property, Plant Equipment PPE

• PPE are tangible assets that
• are held for use
• expected to be used more than one period

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What it covers

• Recognition of asset
• carrying amount
• Depreciation
• Impairment

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Measurement at recognition
Measure the items of PPE at initial recognition
at its Cost.
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Elements of cost

• Purchase price
• Costs directly attributable to bringing the asset
  to the location condition
• Initial estimate of the costs of dismantling
  removing the items restoring the site on which
  it is located.

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Measurement of cost

• Cash price equivalent at the recognition date
• if acquired in exchange for non-monetary asset
  at fair value
• PPE held by a lessee under finance lease as per
  Ind AS-17

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Cost of dismantling/decommissioning

• The elements of cost to be incorporated in the
  initial recognition of an asset are to include
  the estimated costs of its eventual dismantlement
  (decommissioning cost). That is, the cost of
  the asset is grossed up for these estimated
  terminal costs, with the offsetting credit being
  posted to a liability account.
• It is important to stress that recognition of a
  liability can only be effected when all the
  criteria set forth in Ind AS-37 for the
  recognition in provisions are met.
• It seems odd to capitalize decommissioning costs
  that are not going to emerge until later in the
  assets life. However if there is an obligation
  as a direct consequence of acquiring or
  constructing property, plant and equipment to
  incur further costs in the future that cannot be
  avoided.

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Cost of dismantling/decommissioning

• A provision is recognized in accordance with Ind
  AS-37. Therefore, the decommissioning costs at
  the end of the assets life are just as much a
  cost of acquiring or constructing the asset as
  the costs incurred at the start of the assets
  life.
• Decommissioning or similar costs such as
  dismantling expenditure can often arise in
  connection with operating leases and leasehold
  improvements.

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Measurement after initial recognition
Accounting policy election

• Cost model
• Revaluation model

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Cost Model
At cost less Any accumulated depreciation less
Any accumulated impairment losses
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Revaluation Model
Fair value less Subsequent accumulated
depreciation less Subsequent accumulated
impairment losses
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Revaluation Model
If an items of PPE is revalued, the entire class
of PPE to which that asset belongs shall be
revalued.
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Revaluation increase/ decrease

• Increase shall be recognised directly to equity
  under the heading of revaluation surplus
• Decrease shall be recognised to profit or loss

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Subsequent cost

• Cost of day-to-day servicing are primarily
  repairs maintenance and recognise in profit
  loss as incurred.
• Added in carrying amount of PPE if recognition
  criteria is met

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Impairment
Whether an item of PPE is impaired, an entity
applied Ind AS-36, Impairment of Assets
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Compensation for Impairment
An entity shall include in profit or loss
compensation from third parties for items of PPE
that were impaired, lost or given up only when
the compensation becomes receivable.
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De-recognition

• An entity shall de-recognise PPE
• on disposal
• when no future economic benefits are expected
  from its use or disposal

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Gain loss on the recognition

• The gain or loss arising from the de-recognition
  of an item of PPE shall be included in profit or
  loss
• Gain shall not be classified as revenue unless
  Ind AS-17 requires otherwise on a sale and
  leaseback

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Depreciation

• Each part of an item PPE with a cost that is
  significant in relation to the total cost of the
  item shall be depreciated separately
• A Building may be split up into the following
  components
• Structural design
• Elevators
• Heating system
• Water system
• Electrical system

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Depreciable amount

• Allocate the depreciable amount of an asset on a
  systematic basis over its useful life
• Review the residual value and the useful life of
  an asset at lest at each annual reporting date

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Depreciation Method

• The depreciation method used shall reflect the
  pattern in which the assets future economic
  benefits are expected to be consumed by the
  entity
• The depreciation method applied to an asset shall
  be reviewed at least at each financial year end
• Change shall be accounted for as a change in an
  accounting estimate in accordance with Ind AS-8
• Methods includes the straight-line method, the
  diminishing balance method and Units of
  Production method

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Disclosure

• Measurement basis for the gross carrying amount
• Reconciliation of carrying amount
• Useful life, depreciation, depreciation rate
• Accumulated depreciation and impairment
• Disclosure of revaluation
• Other number of disclosures

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Fair value less cost to sell

• Binding sale agreement
• Active market
• Best estimate based on information

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Recoverable amount of an individual asset cannot
be determined

• No impairment loss is recognised for an
  individual asset if related cash generating unit
  is not impaired

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Impairment loss Deferred tax

• If an impairment loss is adjusted in
  account/financial statement, any related
  deferred tax assets or liabilities are also to be
  determined as per Ind AS-12 Income taxes

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Reversal of a impairment loss

• Reversal of impairment loss for individual asset
  other than goodwill
• Reversal of impairment loss for cash generating
  unit
• Reversal of impairment loss for goodwill

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Reversal of a impairment loss for individual
asset other than goodwill

• Any increase in the carrying amount of an asset
  above the carrying amount that would have been
  determined (net of amortization or depreciation)
  had no impairment loss been recognised for the
  asset in prior years is a revaluation and should
  be treated accordingly.

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Reversal of impairment loss for cash generating
unit

• A reversal of an impairment loss for a cash
  generating unit should be allocated to increase
  the carrying amount of the assets (but never to
  goodwill) pro-rata with the carrying amount of
  those assets.

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Reversal of a impairment loss on goodwill

• An impairment loss recognised for goodwill cannot
  be reversed in a subsequent period

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Disclosures

• For each class of assets
• Requirement for segment reporting
• Requirement for cash generating unit
• Requirement for reversal of impairment loss

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• THANK
• YOU
• CA, D.S.RAWAT
• Partner, BANSAL Co.