Financial Accounting and Reporting
FAR.104-Property, Plant and Equipment –
Acquisition and Subsequent Expenditures
DISCUSSION PROBLEMS
1. Property, plant and equipment are
a. Identifiable non-monetary assets without physical
substance.
b. Properties held to earn rentals or for capital
appreciation or both.
c. Assets held for sale in the ordinary course of
business.
d. Tangible items that are held for use in the
production or supply of goods or services, for
rental to others, or for administrative purposes;
and are expected to be used during more than one
period.
2. The cost of an item of property, plant and equipment
comprises:
I. Its purchase price, including import duties and
non-refundable purchase taxes, after deducting
trade discounts and rebates.
II. 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.
III. 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.
a. I, II, and III
b. I and II only
c. I and III only
d. I only
3. 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
exclude
a. Costs of 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. Administration and other general overhead costs.
4. 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
exclude
a. Installation and assembly costs.
b. Costs of testing whether the asset is functioning
properly.
c. Professional fees.
d. Costs of opening a new facility.
5. Costs of an item of property, plant and equipment
include
a. Costs of introducing a new product or service.
b. Costs of advertising and promotional activities.
c. Costs of conducting business in a new location or
with a new class of customer.
d. Professional fees.
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6. Extra Corporation is installing a new plant at its
production facility. It has incurred these costs:
Purchase price of plant P2,500,000
Initial delivery and handling costs 200,000
Cost of site preparation 600,000
Consultants used for advice on the
acquisition of the plant 700,000
Estimated dismantling costs to be
incurred after 7 years 300,000
Operating losses before commercial
production 400,000
The total costs that can be capitalized in accordance
with PAS 16 is
a. P4,900,000 c. P4,300,000
b. P4,500,000 d. P3,600,000
7. Cabiao Company purchased a new printing machine on
December 2, 2017 at an invoice price of P4,000,000
with terms 2/10, n/30. On December 10, 2017,
Cabiao paid the required amount for the machine. The
installation costs were P50,000 and the employees
received training on how to use the machine, at a cost
of P20,000. Before using the machine to print
customers’ orders, a test was undertaken and the
paper and ink cost P5,000. What amount should be
capitalized as cost of the machine?
a. P4,075,000 c. P3,975,000
b. P3,995,000 d. P3,970,000
8. Seller Co. sold a used asset to Buyer Co. for P800,000,
accepting a five-year 6% note for the entire amount.
Buyer's incremental borrowing rate was 14%. The
annual payment of principal and interest on the note
was to be P189,930. The asset could have been sold
at an established cash price of P651,460. The present
value of an ordinary annuity of P1 at 8% for five
periods is 3.99. The asset should be capitalized on
buyer's books at
a. P949,650 c. P757,820
b. P800,000 d. P651,460
P216 Kimwell/aicpa 11.82
9. The cost of an item of property, plant and equipment is
the cash price equivalent at the recognition date. If
payment is deferred beyond normal credit terms, the
difference between the cash price equivalent and the
total payment is recognized as
a. Interest over the period of credit unless such
interest is capitalized in accordance with PAS 23.
b. Part of the carrying amount of the asset.
c. Either as interest over the period of credit or as
part of the carrying amount of the asset depending
on the entities accounting policy.
d. Interest at the recognition date.
10. Imus Company acquired two items of machinery as
follows:
 On January 1, 2017, Imus Company acquired used
machinery by issuing to the seller a three-year,
12% interest note for P3,000,000.
FAR.104
EXCEL PROFESSIONAL SERVICES, INC.

 On December 30, 2017, Imus Company purchased
a machine in exchange for a noninterest bearing
note requiring three payments of P1,000,000. The
first payment was made on December 30, 2017,
and the others are due annually on December 30.
The prevailing rate of interest for this type of note
at date of issuance was 12%. The present value of
an ordinary annuity of 1 at 12% is 1.69 for two
periods and 2.40 for three periods.
What is the total cost of the machinery?
a. P4,820,000 c. P5,690,000
b. P5,400,000 d. P6,000,000
11. Cavite Company acquired land and building by issuing
60,000, P100 par value, ordinary shares. On the date
of acquisition, the shares had a fair value of P150 per
share and the land and building had fair value of
P2,000,000 and P6,000,000 respectively.
During the year, Cavite also received land from a
shareholder to facilitate the construction of a plant in
the city. Cavite paid P100,000 for the land transfer.
The land’s fair value is P1,500,000.
As a result of these acquisitions, Cavite Company’s
equity had a net increase of
a. P10,500,000 c. P9,400,000
b. P 9,500,000 d. P7,400,000
Use the following information for the next two questions.
Company A had a machine with a carrying amount of
P450,000. Company B had a delivery vehicle with a
carrying amount of P300,000. Companies A and B
exchanged the machine and vehicle, and Company B paid
an additional P90,000 cash as part of the exchange.
Assume that the fair value of the delivery vehicle is
P420,000. The exchange has commercial substance.
13. How much gain or loss should be recorded by
Company A?
a. P30,000 loss c. P120,000 loss
b. P60,000 gain d. P120,000 gain
14. How much gain or loss should be recorded by
Company B?
a. P30,000 loss c. P120,000 loss
b. P60,000 gain d. P120,000 gain
Use the following information for the next two questions.
Payor Inc. and Recipient Co. have an exchange with no
commercial substance. The asset given up by Payor Inc.
has a book value of P12,000 and a fair value of P15,000.
The asset given up by Recipient Co. has a book value of
P20,000 and a fair value of P19,000. Boot of P4,000 is
received by Recipient Co.

12. Which statement is incorrect regarding acquisition of 15. Payor Inc. should record the asset received at
items of property, plant and equipment in exchange for a. P15,000 c. P19,000
a non-monetary asset, or a combination of monetary b. P16,000 d. P20,000
and non-monetary asset? 16. Recipient Co. should record the asset received at
a. An entity determines whether an exchange a. P15,000 c. P19,000
transaction has commercial substance by b. P16,000 d. P20,000
considering the extent to which its future cash P121-122 C10 Kieso IFRS TB
flows are expected to change as a result of the
transaction. 17. A used delivery truck was traded in for a new truck.
b. For the purpose of determining whether an Information relating to the trucks follows:
exchange transaction has commercial substance,
the entity-specific value of the portion of the Used truck:
entity’s operations affected by the transaction shall Cost P1,600,000
reflect pre-tax cash flows. Accumulated depreciation 1,200,000
c. The cost of such an item of property, plant and Estimated current fair value 320,000
equipment is measured at fair value. New truck:
d. If the acquired item is not measured at fair value, List price 2,000,000
its cost is measured at the carrying amount of the Cash price without trade-in 1,900,000
asset given up. Cash price with trade-in 1,560,000
The amount that should be capitalized as the cost of
LECTURE NOTES: the new truck is
Exchange – No Boot a. P1,560,000 c. P1,880,000
b. P1,900,000 d. P1,960,000
With commercial substance rpcpa 5/86 (P220 Kimwell)-AMP
1) FV of asset given up (AGU)
2) FV of asset received 18. To be consistent with the historical cost principle,
3) Carrying amount of asset given up overhead costs incurred by an entity constructing its
Gain (loss) = FV of asset given – CA of asset given own PPE should be
a. Allocated on the basis of lost production.
No commercial substance b. Eliminated completely from the cost of the asset.
Carrying amount of asset given up c. Allocated on an opportunity cost basis.
d. Allocated on a pro rata basis between the asset
No gain or loss on exchange
and normal operations.
Exchange – With Boot
19. The Royal Furniture Mfg. Co. fabricated furniture and
With commercial substance fixtures for its office use in the company’s plant during
2017. The following data were taken from the
Payor = FV of AGU + cash paid = FV of AR company’s records:
Recipient = FV of AGU - cash received = FV of AR Materials Direct Labor
Finished goods P100,800 P151,200
No commercial substance Office furniture & fixtures 67,200 50,500
Payor = CA of AGU + cash paid Factory overhead amounted to P134,000. Normal
Recipient = CA of AGU – cash received production of finished goods results to 420 units. Due

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EXCEL PROFESSIONAL SERVICES, INC.
to the fabrication of office furniture and fixtures,
finished goods produced totaled 294 units only in
2017. The assets are to be charged with the overhead
which would have been apportioned to the 126 units
which were not produced.
What is the total cost of office furniture and fixtures?
a. P117,600 c. P175,029
b. P157,900 d. P251,600
RPCPA 1085
20. Which statement is incorrect regarding land and
buildings?
a. Land and buildings are separable assets and are
accounted for separately, even when they are
acquired together.
b. Land normally has an unlimited useful life and
therefore is not depreciated.
c. Buildings have a limited useful life and therefore
are depreciable assets.
d. An increase in the value of the land on which a
building stands affects the determination of the
depreciable amount of the building.
21. An entity acquired a piece of land with existing building
with the intention to demolish the old building right
away in order to construct a new building on its site as
part of its planned redevelopment. In accordance with
PIC Q&A No. 2012-02, it is appropriate for the entity to
account for the carrying value of the old building as
part of the cost of the new building
a. That will be used as an owner-occupied property
b. That will be held as an investment property
c. That will be sold as an inventory
d. None of the above.
22. An entity acquired a piece of land with existing building
with the intention to initially use the old building as an
owner-occupied property and then demolish it in a
future period and replace it with a new building. In
accordance with PIC Q&A No. 2012-02, it is
appropriate for the entity to account for the carrying
value of the old building as part of the cost of the new
building
a. That will be used as an owner-occupied property
b. That will be held as an investment property
c. That will be sold as an inventory
d. None of the above.
23. In accordance with PIC Q&A No. 2012-02, the costs
incurred in relation to demolition (or the physical
tearing down) of the old building to give way for the
construction of the replacement building should
preferably be
a. Expensed.
b. Capitalized as part of the cost of land.
c. Capitalized as land improvements.
d. Capitalized as part of the cost of the new building.
24. Lenny Corporation purchased for P690,000 a tract of
land on which a warehouse and office building were
located. The following data were collected concerning
the property:
Current Assessed Vendor's
Valuation Original Cost
Land P280,000 P180,000
Warehouse 320,000 315,000
Office Building 200,000 129,000
P800,000 P624,000
Determine the appropriate amount that Lenny should
charge to land.
a. P690,000 c. P241,500
b. P280,000 d. P199,000
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LECTURE NOTES:
Land Acquired with Building
Before PIC Q&A No. 2012-2
Old building demolished RIGHT AWAY:
• Total cost charged to Land including demolition costs
Old building USED INITIALLY before demolition:
• Total cost allocated to land and building pro rata based
on fair values
• Demolition of old building accounted for as
derecognition (ie the difference between the proceeds
and carrying amount recognized as gain or loss)
• Demolition costs are included in computing gain or loss
on derecognition
In accordance with PIC Q&A No. 2012-2
• Total cost allocated to land and building pro rata based
on fair values REGARDLESS of intention
• Allocated cost or CA of old building generally recognized
in profit or loss as loss on derecognition
• Exception, old building demolished right away and the
new building is inventory
25. Reiley Co. purchased land as a factory site for
P1,000,000. Reiley paid P40,000 to tear down two
buildings on the land. Salvage was sold for P5,400.
Legal fees of P3,480 were paid for title investigation
and making the purchase. Income of P8,000 was
earned through using the land as a car park before
construction started. Architect's fees were P41,200.
Title insurance cost P2,400, and liability insurance
during construction cost P2,600. Excavation cost
P10,440. The contractor was paid P2,400,000. An
assessment made by the city for pavement was
P6,400. Interest costs during construction were
P170,000.
The cost of the land that should be recorded by Reiley
Co. is
a. P1,040,480 c. P1,046,880
b. P1,032,480 d. P1,038,880
P33 Kieso TB10 11th-AMP
Use the following information for the next two questions.
Hawks Corporation’s Property, Plant and Equipment section
of its statement of financial position as of December 31,
2016 included the following:
Land P 400,000
Buildings 3,200,000
The following transactions occurred during 2017:
 Land site number 102 was acquired for P4,000,000.
Additionally, to acquire the land the entity paid a
P240,000 commission to a real estate agent. Costs of
P60,000 were incurred to clear the land. During the
course of clearing the land, timber and gravel were
recovered and sold for P20,000.
 A second tract of land (site number 103) with a
building was acquired for P1,200,000. Based on
reliable information at the time of acquisition, fair
value of land is P800,000 and the building P400,000.
Shortly after acquisition, the building was demolished
at a cost of P120,000. A new building was constructed
for P1,600,000 plus the following costs:
Excavation fees P 44,000
Architectural design fees 32,000
Building permit fee 4,000
FAR.104
EXCEL PROFESSIONAL SERVICES, INC.

The building was completed and occupied on What amount of the above expenditures should be
September 1, 2017. capitalized in 2017?
 A third tract of land (site number 104) was acquired a. P8,000,000 c. P5,400,000
for P2,400,000. The entity is undecided regarding its b. P7,400,000 d. P2,600,000
future use.
29. The financial statements shall disclose, for each class
QUESTIONS: of property, plant and equipment
I. The measurement bases used for determining the
Determine the balance of the following as of December 31, gross carrying amount
2017 in accordance with PIC Q&A 2012-02: II. The depreciation methods used
III. The useful lives or the depreciation rates used
26. Land IV. The gross carrying amount and the accumulated
a. P5,600,000 c. P6,000,000 depreciation (aggregated with accumulated
b. P5,480,000 d. P7,880,000 impairment losses) at the beginning and end of the
period
27. Buildings V. A reconciliation of the carrying amount at the
a. P5,400,000 c. P5,000,000 beginning and end of the period
b. P5,280,000 d. P4,880,000
a. I, II, III IV and V
28. Dasmariñas Company has a production assembly line b. I, II, III and IV only
to manufacture furniture. In 2017 Dasmariñas c. I, II and III only
purchased a new machine and rearranged the d. II, III, IV and V only
assembly line to install this machine. The
rearrangement did not increase the estimated useful 30. The financial statements shall disclose, for each class
life of the assembly line but it did result in significantly of property, plant and equipment
more efficient production. The following expenditures a. The carrying amount of temporarily idle property,
were incurred in connection with this project: plant and equipment.
b. The gross carrying amount of any fully depreciated
Machine P5,000,000 property, plant and equipment that is still in use.
Labor to install new machine 400,000 c. The carrying amount of property, plant and
Parts added in rearranging the equipment retired from active use and not
assembly line to provide future classified as held for sale in accordance with PFRS
benefits 2,000,000 5.
Labor and overhead to rearrange the d. Acquisitions through business combinations.
assembly line 600,000
- now do the DIY drill -

DO-IT-YOURSELF (DIY) DRILL

1. PAS 16 applies to 4. Items of property, plant and equipment acquired for
a. Property, plant and equipment classified as held safety or environmental reasons
for sale in accordance with PFRS 5 a. Qualify as assets because the acquisition of such
b. Biological assets related to agricultural activity property, plant and equipment directly increases
c. Mineral rights and mineral reserves such as oil, the future economic benefits of existing item of
natural gas and similar non-regenerative property, plant and equipment.
resources. b. Qualify as assets because they enable an entity to
d. Property, plant and equipment used to develop or derive future economic benefits from related assets
maintain biological assets and mineral rights and in excess of what could be derived had those items
mineral resources not been acquired.
c. Do not qualify as assets because the acquisition of
2. PAS 16 does not apply to such property, plant and equipment does not
a. An entity using the cost model for investment directly increase the future economic benefits of
property. existing item of property, plant and equipment.
b. Depreciation of leased assets. d. Do not qualify as assets because the acquisition of
c. Recognition and measurement of exploration and such property, plant and equipment is not
evaluation assets. necessary for an entity to obtain the future
d. All of these. economic benefits from its other assets.

3. Which statement is incorrect regarding spare parts and
servicing equipment?
a. Spare parts and servicing equipment are usually
carried as inventory and recognized in profit or loss
as consumed.
b. Major spare parts and stand-by equipment qualify
as property, plant and equipment when an entity
expects to use them during more than one period.
c. Spare parts and servicing equipment that can be
used only in connection with an item of property,
plant and equipment are accounted for as
property, plant and equipment.
d. None of the above.
5. A condition of continuing to operate an item of
property, plant and equipment (for example, an
aircraft) may be performing regular major inspections
for faults regardless of whether parts of the item are
replaced. When each major inspection is performed,
its cost is
a. Recognized in profit or loss as incurred.
b. Often described as for the ‘repairs and
maintenance’ of the item of property, plant and
equipment.
c. Recognized in other comprehensive income as
incurred.
d. Recognized in the carrying amount of the item of
property, plant and equipment as a replacement if
the recognition criteria are satisfied.

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EXCEL PROFESSIONAL SERVICES, INC.

6. Newcastle Ltd uses many kinds of machines in its 10. Parr Company traded in a used delivery truck with a
operations. It constructs some of these machines carrying amount of P54,000 for a new delivery truck
itself and acquires others from the manufacturers. The having a list price of P160,000 and paid a cash
following information relates to machine A that it has difference to the dealer of P75,000. The used truck
recorded during the current year. has a fair value of P60,000 on the date of the
Cash paid for equipment, including VAT of exchange. At what amount should the new truck be
P9,600 P89,600 recorded on Parr's books?
Costs of transporting machine - insurance a. P160,000 c. P129,000
and transport 3,000 b. P135,000 d. P106,000
Labor costs of installation by expert fitter 5,000 P221 Kimwell/aicpa 5/85 and 11/86
Labor costs of testing equipment 4,000 Use the following information for the next two questions.
Insurance costs for current year 1,500 Cleveland Ltd acquired real estate for the construction of a
Costs of training for personnel who will building and other facilities. Operating equipment was also
use the machine 2,500 purchased and installed. The company's accountant, who
Costs of safety rails and platforms was not sure how to record some of the transactions,
surrounding machine 6,000 opened a Property ledger account and recorded debits and
Costs of water devices to keep machine (credits) to this account as follows.
cool 8,000
Costs of adjustments to machine to make Cost of land purchased as a building site P170,000
it operate more efficiently 7,500 Architect's fee for design of new building 23,000
Paid for the demolition of an old building
Determine the amount at which machine A should be on the building site purchased above 28,000
recorded in the records of Newcastle Ltd. Paid land tax on the real estate purchased
a. P105,500 c. P113,500 as a building site 1,700
b. P116,000 d. P121,500 Paid excavation costs for the new building 15,000
Applying IAS Made the first payment to the building 250,000
7. Sunflower Company acquired some new equipment. contractor
The following data have been made available to you: Paid for equipment to be installed in the
List price of the equipment P14,000 new building 148,000
Cash discount available but not taken on Received from sale of salvaged materials
purchase 200 from demolishing the old building (6,800)
Freight paid on the new equipment 250 Made final payment to the building 350,000
Cost of removing the old equipment 170 contractor
Installation costs of the new equipment 430 Paid interest on building loan during 22,000
Testing costs before the equipment was construction
put to regular operation (including Paid freight on equipment purchased 1,900
P120 in wages of the regular Paid installation costs of equipment 4,200
equipment operator) 295 Paid for repair of equipment damaged
Loss on premature retirement of the old during installation 2,700
equipment 120 Property ledger account balance P1,009,700
Estimated cost of manufacturing similar Compute for the following:
equipment in the company's own plant,
including overhead 13,800 11. Land
a. P191,900 c. P207,900
What amount should be capitalized as the cost of the b. P163,200 d. P192,900
new equipment?
12. Building
a. P14,775 c. P14,975
a. P694,000 c. P653,200
b. P28,865 d. P15,065
b. P660,000 d. P666,800
P8.7 Applying IAS
8. On September 1, 2017, Ron Corporation issued 10,000
13. Under PAS16 Property, plant and equipment, which
shares of its P25 par treasury ordinary shares for a
two of the following costs relating to non-current
parcel of land intended as a future plant site. The
assets should be capitalized?
treasury shares were acquired by Ron at a cost of P30
I. Replacement of a building's roof every 15 years
per share. Ron's ordinary share had a fair market
II. Maintenance of an asset on a three-monthly basis
value of P40 per share on September 1, 2017. Ron
III. Installation and assembly costs
received P50,000 from the sale of scrap when an
IV. Replacement of small spare parts annually
existing structure on the site was razed. At what
a. I and III c. III and IV
amount should the land be carried?
b. II and IV d. I and II
a. P400,000 c. P300,000
b. P350,000 d. P250,000
14. In relation to the financial statements, PAS 16
P231 Kimwell/aicpa 5.82; 5.83; 5.87
Property, Plant and Equipment, requires that the
following disclosures be made for each class of asset:
9. Winn Company exchanged an old machine having a
I. The carrying amount at the beginning and end of
carrying amount of P16,800, and paid a cash
the reporting period.
difference of P6,000 for a new machine having a total
II. Accumulated depreciation.
cash price of P20,500. The cash flows from the new
III. Total additions and disposals.
machine are expected to be significantly different than
IV. The total of impairment losses.
the cash flows from the old machine. What amount of
V. Fair value at reporting date.
loss should Winn recognize on this exchange?
a. P0 c. P3,700 a. I, III and IV only c. I, II, IV and V only
b. P2,300 d. P6,000 b. I, II III and IV only d. II, III, IV and V only
P11 M11 pp. 377 Wiley12-13
- done -

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EXCEL PROFESSIONAL SERVICES, INC.
LECTURE NOTES
SUMMARY OF PAS 16
PROPERTY, PLANT AND EQUIPMENT
Objective
The objective of PAS 16 is to prescribe the accounting
treatment for property, plant, and equipment. The
principal issues are the recognition of assets, the
determination of their carrying amounts, and the
depreciation charges and impairment losses to be
recognised in relation to them.
Scope
PAS 16 applies to the accounting for property, plant and
equipment, except where another standards requires or
permits differing accounting treatments, for example:
 assets classified as held for sale in accordance with
PFRS 5
 biological assets related to agricultural activity
accounted for under PAS 41
 exploration and evaluation assets recognised in
accordance with PFRS 6
 mineral rights and mineral reserves such as oil,
natural gas and similar non-regenerative resources.
The standard does apply to property, plant, and
equipment used to develop or maintain the last three
categories of assets. [PAS 16.3]
Recognition
Items of property, plant, and equipment should be
recognised as assets when it is probable that: [PAS
16.7]
 it is probable that the future economic benefits
associated with the asset will flow to the entity, and
 the cost of the asset can be measured reliably.
This recognition principle is applied to all property, plant,
and equipment costs at the time they are incurred.
These costs include costs incurred initially to acquire or
construct an item of property, plant and equipment and
costs incurred subsequently to add to, replace part of, or
service it.
PAS 16 does not prescribe the unit of measure for
recognition – what constitutes an item of property,
plant, and equipment. [PAS 16.9] Note, however, that if
the cost model is used (see below) each part of an item
of property, plant, and equipment with a cost that is
significant in relation to the total cost of the item must
be depreciated separately. [PAS 16.43]
PAS 16 recognises that parts of some items of property,
plant, and equipment may require replacement at
regular intervals. The carrying amount of an item of
property, plant, and equipment will include the cost of
replacing the part of such an item when that cost is
incurred if the recognition criteria (future benefits and
measurement reliability) are met. The carrying amount
of those parts that are replaced is derecognised in
accordance with the derecognition provisions of PAS
16.67-72. [PAS 16.13]
Also, continued operation of an item of property, plant,
and equipment (for example, an aircraft) may require
regular major inspections for faults regardless of
whether parts of the item are replaced. When each
major inspection is performed, its cost is recognised in
the carrying amount of the item of property, plant, and
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equipment as a replacement if the recognition criteria
are satisfied. If necessary, the estimated cost of a future
similar inspection may be used as an indication of what
the cost of the existing inspection component was when
the item was acquired or constructed. [PAS 16.14]
Initial measurement
An item of property, plant and equipment should initially
be recorded at cost. [PAS 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 PAS 37). [PAS 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. [PAS 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. [PAS 16.24]
Measurement subsequent to initial recognition
PAS 16 permits two accounting models:
 Cost model. The asset is carried at cost less
accumulated depreciation and impairment. [PAS
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. [PAS 16.31]
The revaluation model
Under the revaluation model, revaluations should be
carried out regularly, so that the carrying amount of an
asset does not differ materially from its fair value at the
balance sheet date. [PAS 16.31]
If an item is revalued, the entire class of assets to which
that asset belongs should be revalued. [PAS 16.36]
Revalued assets are depreciated in the same way as
under the cost model.
If a revaluation results in an increase in value, it should
be credited to other comprehensive income and
accumulated in equity under the heading "revaluation
surplus" unless it represents the reversal of a
revaluation decrease of the same asset previously
recognised as an expense, in which case it should be
recognised in profit or loss. [PAS 16.39]
A decrease arising as a result of a revaluation should be
recognised as an expense to the extent that it exceeds
any amount previously credited to the revaluation
surplus relating to the same asset. [PAS 16.40]
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When a revalued asset is disposed of, any revaluation
surplus may be transferred directly to retained earnings,
or it may be left in equity under the heading revaluation
surplus. The transfer to retained earnings should not be
made through profit or loss. [PAS 16.41]
Depreciation (cost and revaluation models)
The depreciable amount (cost less residual value) should
be allocated on a systematic basis over the asset's
useful life [PAS 16.50].
The residual value and the useful life of an asset should
be reviewed at least at each financial year-end and, if
expectations differ from previous estimates, any change
is accounted for prospectively as a change in estimate
under PAS 8. [PAS 16.51]
The depreciation method used should reflect the pattern
in which the asset's economic benefits are consumed by
the entity [PAS 16.60]; a depreciation method that is
based on revenue that is generated by an activity that
includes the use of an asset is not appropriate. [PAS
16.62A]
Note: The clarification regarding the revenue-based
depreciation method was introduced by Clarification of
Acceptable Methods of Depreciation and Amortisation,
which applies to annual periods beginning on or after 1
January 2016.
The depreciation method should be reviewed at least
annually and, if the pattern of consumption of benefits
has changed, the depreciation method should be
changed prospectively as a change in estimate under
PAS 8. [PAS 16.61] Expected future reductions in selling
prices could be indicative of a higher rate of
consumption of the future economic benefits embodied
in an asset. [PAS 16.56]
Note: The guidance on expected future reductions in
selling prices was introduced by Clarification of
Acceptable Methods of Depreciation and Amortisation,
which applies to annual periods beginning on or after 1
January 2016.
Depreciation should be charged to profit or loss, unless it
is included in the carrying amount of another asset [PAS
16.48].
Depreciation begins when the asset is available for use
and continues until the asset is derecognised, even if it
is idle. [PAS 16.55]
Recoverability of the carrying amount
PAS 16 requires impairment testing and, if necessary,
recognition for property, plant, and equipment. An item
of property, plant, or equipment shall not be carried at
more than recoverable amount. Recoverable amount is
the higher of an asset's fair value less costs to sell and
its value in use.
Any claim for compensation from third parties for
impairment is included in profit or loss when the claim
becomes receivable. [PAS 16.65]
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Derecognition (retirements and disposals)
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.
[PAS 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. [PAS 16.68A]
Disclosure
Information about each class of property, plant
and equipment
For each class of property, plant, and equipment,
disclose: [PAS 16.73]
 basis for measuring carrying amount
 depreciation method(s) used
 useful lives or depreciation rates
 gross carrying amount and accumulated depreciation
and impairment losses
 reconciliation of the carrying amount at the beginning
and the end of the period, showing:
- additions
- disposals
- acquisitions through business combinations
- revaluation increases or decreases
- impairment losses
- reversals of impairment losses
- depreciation
- net foreign exchange differences on translation
- other movements
Additional disclosures
The following disclosures are also required: [PAS 16.74]
 restrictions on title and items pledged as security for
liabilities
 expenditures to construct property, plant, and
equipment during the period
 contractual commitments to acquire property, plant,
and equipment
 compensation from third parties for items of
property, plant, and equipment that were impaired,
lost or given up that is included in profit or loss.
IAS 16 also encourages, but does not require, a number
of additional disclosures. [PAS 16.79]
Revalued property, plant and equipment
If property, plant, and equipment is stated at revalued
amounts, certain additional disclosures are required:
[PAS 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.
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FAR.104