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Accounting for

Property, Plant &


Equipment
Ind AS 16

Critical Aspects of PPE


Types of
Assets

Covered
Measuremen
t

Derecognition
Accounting
for PPE

Subsequent
Expenditure

Depreciation
Revaluation

Property, Plant & Equipment Coverage


Tangible Items:

a. Held for use in production or supply of goods or services,


for rental to others or for administrative purposes, and
b. Are expected to be used in more than one period
Exclusions:

c. Held for sale or belonging to discontinued business (Ind


AS 105)
d. Assets Related to exploration and evaluation of mineral
resources (Ind AS 106)
e. Mineral rights and reserves

Measuring the Asset


Relevance of Cost
Purchase Price:
Cash Value on Date of Recognition
Net of Discounts and Adjustable Duties and Taxes
Interest cost till date of recognition can also be added

Costs directly attributable to bringing the asset to its location and in


the condition so as to make it available for its intended use
Salaries, wages, site preparation, transportation, installation, testing and
professional fees

Estimated Site Restoration Cost

Subsequent Expenditure
Subsequent
Expenditures
Capital Expenditure
Enhances revenue
generating capacity
or increases useful
life
Capitalize

Revenue
Expenditurethe
Maintenance
existing capacity of
the asset
Expense

Replacements
At regular intervals
or otherwise
Capitalize either
with asset or as
separate asset
Replaced parts are
derecognized

Revaluation of Assets
First Time

Subsequent Periods
Gain
(B/S Increase Reserves)

Gain
(B/S
Reserves)

Revaluation

Loss
(Expense IS)

Loss
(B/S Decrease Reserves to the extent
available and write off balance, if any, from
Income Statement)
Gain
(Income To the extent earlier considered as
loss and any remaining gain, if any, to be
taken to B/S as reserves)
Loss
(Expense IS)

Rules for Revaluation


Company cannot utilize the revaluation reserve for distribution
as dividend
Revaluation is allowed only if all the assets of the similar
category are revalued by the entity
The final balance in revaluation reserve for an asset will be
transferred to retained earnings when the asset is actually
disposed

Depreciation
Depreciable Value:
Cost (or amount substituted for cost) Residual Value
Useful Life:
Period for which asset is expected to be available for use, or
Number of Production Units expected from an asset

Allocation of Depreciable Amount over Useful Life (Methods):


Straight Line Method
Written Down Value Method
Production Volume Method

Straight Line Method

Simple method
Assumes depreciation is function of time only
Widely used method

Written Down Value Method

N = Useful Life of Asset


Only method permissible under the Income Tax Act (except for
power generation companies)

Production Unit Method

Depreciation: Important Considerations


Review Useful Life
Review Residual Value

Changes to be dealt as Changes


in Accounting Estimates as per
IndAS 8

Review Pattern of Expected Economic Benefits from the asset:


To change the method of depreciation
Depreciation is chargeable from the date asset is available for
use

Impairment of Assets
Depreciation: Planned and Systematic
Impairment: Sudden and Unexpected
Impairment Loss: Excess of carrying value of asset over
recoverable amount
When to be assessed: At the end of each reporting period
Depreciation Charge will be revised
If the valuation improves, Impairment Loss should be reversed