PAMANTASAN NG CABUYAO

COLLEGE OF BUSINESS, ACCOUNTANCY & ADMINISTRATION

PAS 16 PROPERTY PLANT AND EQUIPMENT

The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that
users of the financial statements can discern information about an entity’s investment in its property, plant and
equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment
are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and
impairment losses to be recognized in relation to them.

This Standard shall be applied in accounting for property, plant and equipment except when another Standard
requires or permits a different accounting treatment.

This Standard does not apply to:

(a) property, plant and equipment classified as held for sale in accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations.

(b) biological assets related to agricultural activity other than bearer plants (see IAS 41 Agriculture). This Standard
applies to bearer plants but it does not apply to the produce on bearer plants.

(c) the recognition and measurement of exploration and evaluation assets (see IFRS 6 Exploration for and Evaluation
of Mineral Resources).

(d) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

• Definitions

The following terms are used in this Standard with the meanings specified:

➢ A bearer plant is a living plant that:

a) is used in the production or supply of agricultural produce;
b) is expected to bear produce for more than one period; and
c) has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.

➢ Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation
and accumulated impairment losses.

➢ Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire
an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset
when initially recognized in accordance with the specific requirements of other IFRSs, ex IFRS 2 Share-based
Payment.

➢ Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value

➢ Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

➢ Entity-specific value is the present value of the cash flows an entity expects to arise from the continuing use of an
asset and from its disposal at the end of its useful life or expects to incur when settling a liability.

➢ Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. (See IFRS 13 Fair Value Measurement.)

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➢ An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

Property, plant and equipment are tangible items that:

a) are held for use in the production or supply of goods or services, for rental to others, or for administrative
purposes; and
b) are expected to be used during more than one period.

➢ Recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use.

The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the
asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition
expected at the end of its useful life.

Useful life is:

(a) the period over which an asset is expected to be available for use by an entity; or

(b) the number of production or similar units expected to be obtained from the asset by an entity.

The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if:

(a) it is probable that future economic benefits associated with the item will flow to the entity; and

(b) the cost of the item can be measured reliably.

Measurement at recognition

An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.

Elements of cost

The cost of an item of property, plant and equipment comprises:

a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates.
b) 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.
c) 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.

Examples of directly attributable costs are:

1) costs of employee benefits (as defined in IAS 19 Employee Benefits) arising directly from the construction or
acquisition of the item of property, plant and equipment;
2) costs of site preparation;
3) initial delivery and handling costs;
4) installation and assembly costs;
5) costs of testing whether the asset is functioning properly (ie assessing whether the technical and physical
performance of the asset is such that it is capable of being used in the production or supply of goods or
services, for rental to others, or for administrative purposes); and
6) professional fees.

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Examples of costs that are not costs of an item of property, plant and equipment are:

1) costs of opening a new facility;

2) costs of introducing a new product or service (including costs of advertising and promotional activities);
3) costs of conducting business in a new location or with a new class of customer (including costs of staff
training); and
4) administration and other general overhead costs.

Measurement of cost

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 interest over the period of credit unless such interest is capitalized in
accordance with IAS 23.

One or more items of property, plant and equipment may be acquired in exchange for a non-monetary
asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers
simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described
in the preceding sentence.

The cost of such an item of property, plant and equipment is measured at 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. The acquired item is measured in this way even if an entity cannot immediately
derecognize the asset given up. If the acquired item is not measured at fair value, its cost is measured at the
carrying amount of the asset given up.

Measurement after recognition

An entity shall choose either the cost model or the revaluation model as its accounting policy and shall apply that
to an entire class of property, plant and equipment.

Cost model

After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any
accumulated depreciation and any accumulated impairment losses.

Revaluation model

After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably
shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent
accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with
sufficient regularity to ensure that the carrying amount does not differ materially from that which would be
determined using fair value at the end of the reporting period.

If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which
that asset belongs shall be revalued.

A class of property, plant and equipment is a grouping of assets of a similar nature and use in an entity’s operations.
The following are examples of separate classes:

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COLLEGE OF BUSINESS, ACCOUNTANCY & ADMINISTRATION

a) land;
b) land and buildings;
c) machinery;
d) ships;
e) aircraft;
f) motor vehicles;
g) furniture and fixtures;
h) office equipment; and
i) bearer plants.

If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognized in other
comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase
shall be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously
recognized in profit or loss.

If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in profit or
loss. However, the decrease shall be recognized in other comprehensive income to the extent of any credit balance
existing in the revaluation surplus in respect of that asset. The decrease recognized in other comprehensive income
reduces the amount accumulated in equity under the heading of revaluation surplus.

Depreciation

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 shall be depreciated separately.

The depreciation charge for each period shall be recognized in profit or loss unless it is included in the carrying
amount of another asset.

Depreciable amount and depreciation period

The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.

The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if
expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting
estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Depreciation is recognized even if the fair value of the asset exceeds its carrying amount, as long as the asset’s
residual value does not exceed its carrying amount. Repair and maintenance of an asset do not negate the need to
depreciate it.

Depreciation method

The depreciation method used shall reflect the pattern in which the asset’s 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 and, if there has been a significant change in the expected pattern of consumption of the future economic
benefits embodied in the asset, the method shall be changed to reflect the changed pattern. Such a change shall be
accounted for as a change in an accounting estimate in accordance with IAS 8.

Impairment

To determine whether an item of property, plant and equipment is impaired, an entity applies IAS 36 Impairment of
Assets. That Standard explains how an entity reviews the carrying amount of its assets, how it determines the
recoverable amount of an asset, and when it recognizes, or reverses the recognition of, an impairment loss.

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COLLEGE OF BUSINESS, ACCOUNTANCY & ADMINISTRATION

Derecognition

The carrying amount of an item of property, plant and equipment shall be derecognized:

(a) on disposal; or

(b) when no future economic benefits are expected from its use or disposal.

The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit
or loss when the item is derecognized (unless IFRS 16 Leases requires otherwise on a sale and leaseback). Gains shall
not be classified as revenue.

Disclosure

The financial statements shall disclose, for each class of property, plant and equipment:

a) the measurement bases used for determining the gross carrying amount;
b) the depreciation methods used;
c) the useful lives or the depreciation rates used;
d) (dthe gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment
losses) at the beginning and end of the period; and
e) a reconciliation of the carrying amount at the beginning and end of the period showing:
i.additions;
ii.assets classified as held for sale or included in a disposal group classified as held for sale in accordance with
IFRS 5 and other disposals;
iii.acquisitions through business combinations;
iv.increases or decreases resulting from revaluations and from impairment losses recognized or reversed in
other comprehensive income in accordance with IAS 36;
v.impairment losses recognised in profit or loss in accordance with IAS 36;
vi.impairment losses reversed in profit or loss in accordance with IAS 36;
vii.depreciation;
viii.the net exchange differences arising on the translation of the financial statements from the functional
currency into a different presentation currency, including the translation of a foreign operation into the
presentation currency of the reporting entity; and
ix.other changes.

The financial statements shall also disclose:

a) the existence and amounts of restrictions on title, and property, plant and equipment pledged as security for
liabilities;
b) the amount of expenditures recognized in the carrying amount of an item of property, plant and equipment
in the course of its construction; and
c) the amount of contractual commitments for the acquisition of
d) property, plant and equipment.

If not presented separately in the statement of comprehensive income, the financial statements shall also disclose:

a) the amount of 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; and

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b) the amounts of proceeds and cost included in profit or loss in accordance with paragraph 20A that relate to
items produced that are not an output of the entity’s ordinary activities, and which line item(s) in the
statement of comprehensive income include(s) such proceeds and cost.

If items of property, plant and equipment are stated at revalued amounts, the following shall be disclosed in addition
to the disclosures required by IFRS 13:

a) the effective date of the revaluation;

b) whether an independent valuer was involved; for each revalued class of property, plant and equipment, the
carrying amount that would have been recognized had the assets been carried under the cost model; and
c) the revaluation surplus, indicating the change for the period and any restrictions on the distribution of the
balance to shareholders.

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