Objective of IAS 16

The objective of IAS 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
IAS 16 applies to the accounting for property, plant and equipment, except where another
standard requires or permits differing accounting treatments, for example:
o assets classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations
o biological assets related to agricultural activity accounted for under IAS 41 Agriculture
o exploration and evaluation assets recognised in accordance with IFRS 6 Exploration for and
Evaluation of Mineral Resources
o 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.

Recognition
Items of property, plant, and equipment should be recognised as assets when it is probable that

o it is probable that the future economic benefits associated with the asset will flow to the
entity, and
o 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.

Initial measurement
An item of property, plant and equipment should initially be recorded at cost. 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.

Proceeds from selling items produced while bringing an item of property, plant and equipment
to the location and condition necessary for it to be capable of operating in the manner intended
by management are not deducted from the cost of the item of property, plant and equipment but
recognised in profit or loss. If payment for an item of property, plant, and equipment is
deferred, interest at a market rate must be recognised or imputed.

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.
 Measurement subsequent to initial recognition
IAS 16 permits two accounting models:
o Cost model. The asset is carried at cost less accumulated depreciation and impairment.
o 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.

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.
If an item is revalued, the entire class of assets to which that asset belongs should be revalued.
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.
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.
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.

Depreciation (cost and revaluation models)

For all depreciable assets:
The depreciable amount (cost less residual value) should be allocated on a systematic basis over
the asset's useful life.
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 IAS 8.

Recoverability of the carrying amount

IAS 16 Property, Plant and Equipment 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.

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.
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.

Disclosure
Information about each class of property, plant and equipment
 For each class of property, plant, and equipment, disclose: [IAS 16.73]
o basis for measuring carrying amount
o depreciation method(s) used
o useful lives or depreciation rates
o gross carrying amount and accumulated depreciation and impairment losses
o reconciliation of the carrying amount at the beginning and the end of the period, showing:
o additions
o disposals
o acquisitions through business combinations
o revaluation increases or decreases
o impairment losses
o reversals of impairment losses
o depreciation
o net foreign exchange differences on translation
o other movements
Additional disclosures
The following disclosures are also required: restrictions on title and items pledged as security
for liabilities
o expenditures to construct property, plant, and equipment during the period
o contractual commitments to acquire property, plant, and equipment
o 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.
Indian Accounting Standard (Ind AS) 38

Intangible Assets.

Objective

The objective of this Standard is to prescribe the accounting treatment for intangible assets that are
not dealt with specifically in another Standard. This Standard requires an entity to recognise an
intangible asset if, and only if, specified criteria are met. The Standard also specifies how to measure
the carrying amount of intangible assets and requires specified disclosures about intangible assets.

Scope

1. This Standard shall be applied in accounting for intangible assets, except:

(a) intangible assets that are within the scope of another Standard;

(b) financial assets, as defined in Ind AS 32, Financial Instruments: Presentation;

(c) the recognition and measurement of exploration and evaluation assets (Ind AS 106, Exploration
for and Evaluation of Mineral Resources); and

(d) expenditure on the development and extraction of minerals, oil, natural gas and similar non-
regenerative resources.

2. If another Standard prescribes the accounting for a specific type of intangible asset, an entity
applies that Standard instead of this Standard. For example, this Standard does not apply to:

(a) intangible assets held by an entity for sale in the ordinary course of business (Ind AS 2,
Inventories).

(b) deferred tax assets (see Ind AS 12, Income Taxes).

(c) leases that are within the scope of Ind AS 17, Leases.

(d) assets arising from employee benefits (see Ind AS 19, Employee Benefits).

(e) financial assets as defined in Ind AS 32. The recognition and measurement of some financial
assets are covered by Ind AS 110, Consolidated Financial Statements, Ind AS 27, Separate Financial
Statements, and Ind AS 28, Investments in Associates and Joint Ventures.

(f) goodwill acquired in a business combination (see Ind AS 103, Business Combinations).

(g) deferred acquisition costs, and intangible assets, arising from an insurer’s contractual rights
under insurance contracts within the scope of Ind AS 104, Insurance Contracts. Ind AS 104 sets out
specific disclosure requirements for those deferred acquisition costs but not for those intangible
assets. Therefore, the disclosure requirements in this Standard apply to those intangible assets. (h)
non-current intangible assets classified as held for sale (or included in a disposal group that is
classified as held for sale) in accordance with Ind AS 105, Noncurrent Assets Held for Sale and
Discontinued Operations. (i) 2 assets arising from contracts with customers that are recognised in
accordance with Ind AS 115, Revenue from Contracts with Customers.

An asset ( intangible) is identifiable if it either: (a) is separable, i.e is capable of being separated or
divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or
together with a related contract, identifiable asset or liability, regardless of whether the entity
intends to do so; or (b) arises from contractual or other legal rights, regardless of whether those
rights are transferable or separable from the entity or from other rights and obligations.

Control

An entity controls an asset if the entity has the power to obtain the future economic benefits flowing
from the underlying resource and to restrict the access of others to those benefits. The capacity of
an entity to control the future economic benefits from an intangible asset would normally stem from
legal rights that are enforceable in a court of law. In the absence of legal rights, it is more difficult to
demonstrate control. However, legal enforceability of a right is not a necessary condition for control
because an entity may be able to control the future economic benefits in some other way.

Recognition
An intangible asset shall be recognised if, and only if:

(a) it is probable that the expected future economic benefits that are attributable to the asset will
flow to the entity; and (b) the cost of the asset can be measured reliably.

Measurement

An entity shall choose either the cost model or the revaluation model as its accounting policy. If an
intangible asset is accounted for using the revaluation model, all the other assets in its class shall
also be accounted for using the same model, unless there is no active market for those assets.

A class of intangible assets is a grouping of assets of a similar nature and use in an entity’s
operations. The items within a class of intangible assets are revalued simultaneously to avoid
selective revaluation of assets and the reporting of amounts in the financial statements representing
a mixture of costs and values as at different dates.

Cost model

After initial recognition, an intangible asset shall be carried at its cost less any accumulated
amortisation and any accumulated impairment losses.

Revaluation model

After initial recognition, an intangible asset shall be carried at a revalued amount, being its fair value
at the date of the revaluation less any subsequent accumulated amortisation and any subsequent
accumulated impairment losses. For the purpose of revaluations under this Standard, fair value shall
be measured by reference to an active market. Revaluations shall be made with such regularity that
at the end of the reporting period the carrying amount of the asset does not differ materially from
its fair value.

If an intangible asset in a class of revalued intangible assets cannot be revalued because

there is no active market for this asset, the asset shall be carried at its cost less any accumulated
amortisation and impairment losses.

If the fair value of a revalued intangible asset can no longer be measured by reference to an
active market, the carrying amount of the asset shall be its revalued amount at the date of the last
revaluation by reference to the active market less any subsequent accumulated amortisation and
any subsequent accumulated impairment losses.

Disclosure:

General

An entity shall disclose the following for each class of intangible assets, distinguishing between
internally generated intangible assets and other intangible assets:

(a) whether the useful lives are indefinite or finite and, if finite, the useful lives or the amortisation
rates used;

(b) the amortisation methods used for intangible assets with finite useful lives;
(c) the gross carrying amount and any accumulated amortisation (aggregated with accumulated
impairment losses) at the beginning and end of the period;

(d) the line item(s) of the statement of profit and loss in which any amortisation of intangible assets
is included;

(e) a reconciliation of the carrying amount at the beginning and end of the period showing:

(i) additions, indicating separately those from internal development, those acquired separately, and
those acquired through business combinations;

(ii) assets classified as held for sale or included in a disposal group classified as held for sale in
accordance with Ind AS 105 and other disposals;

(iii) increases or decreases during the period resulting from revaluations and from impairment losses
recognised or reversed in other comprehensive income in accordance with Ind AS 36 (if any);

(iv) impairment losses recognised in profit or loss during the period in accordance with Ind AS 36 (if
any);

(v) impairment losses reversed in profit or loss during the period in accordance with Ind AS 36 (if
any);