IFRS-SME-Property, Plant and Equipment
17.1 This section applies to accounting for property, plant and equipment and
investment property whose fair value cannot be measured reliably without undue
cost or effort. Section 16 Investment Property applies to investment property whose
fair value can be measured reliably without undue cost or effort.
17.2 Property, plant and equipment are tangible assets 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.
17.3 Property, plant and equipment does not include:
(a) biological assets related to agricultural activity (see Section 34 Specialised
(b) mineral rights and mineral reserves, such as oil, natural gas and similar
17.4 An entity shall apply the recognition criteria in paragraph 2.27 in determining
whether to recognise an item of property, plant or equipment. Therefore, the
entity shall recognise the cost of an item of property, plant and equipment 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.
17.5 Spare parts and servicing equipment are usually carried as inventory and
recognised in profit or loss as consumed. However, major spare parts and
stand-by equipment are property, plant and equipment when an entity expects to
use them during more than one period. Similarly, if the spare parts and servicing
equipment can be used only in connection with an item of property, plant and
equipment, they are considered property, plant and equipment.
17.6 Parts of some items of property, plant and equipment may require replacement at
regular intervals (eg the roof of a building). An entity shall add to the carrying
amount of an item of property, plant and equipment the cost of replacing part of
such an item when that cost is incurred if the replacement part is expected to
provide incremental future benefits to the entity. The carrying amount of those
parts that are replaced is derecognised in accordance with paragraphs 17.27Ė17.30.
Paragraph 17.16 provides that if the major components of an item of property,
plant and equipment have significantly different patterns of consumption of
economic benefits, an entity shall allocate the initial cost of the asset to its major
components and depreciate each such component separately over its useful life.
17.7 A condition of continuing to operate an item of property, plant and equipment
(eg a bus) 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 recognised in the carrying amount of the item of property,
plant and equipment as a replacement if the recognition criteria are satisfied.
Any remaining carrying amount of the cost of the previous major inspection (as
distinct from physical parts) is derecognised. This is done regardless of whether
the cost of the previous major inspection was identified in the transaction in
which the item was acquired or constructed. 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.
17.8 Land and buildings are separable assets, and an entity shall account for them
separately, even when they are acquired together.
Measurement at recognition
17.9 An entity shall measure an item of property, plant and equipment at initial
recognition at its cost.
Elements of cost
17.10 The cost of an item of property, plant and equipment comprises all of the
(a) its purchase price, including legal and brokerage fees, import duties and
non-refundable purchase taxes, after deducting trade discounts and
(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. These can include the costs of site preparation,
initial delivery and handling, installation and assembly, and testing of
(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.
17.11 The following costs are not costs of an item of property, plant and equipment, and
an entity shall recognise them as an expense when they are incurred:
(a) costs of opening a new facility.
(b) costs of introducing a new product or service (including costs of advertising
and promotional activities).
(c) costs of conducting business in a new location or with a new class of
customer (including costs of staff training).
(d) administration and other general overhead costs.
(e) borrowing costs (see Section 25 Borrowing Costs).
17.12 The income and related expenses of incidental operations during construction or
development of an item of property, plant and equipment are recognised in profit
or loss if those operations are not necessary to bring the item to its intended
location and operating condition.
Measurement of cost
17.13 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
cost is the present value of all future payments.
Exchanges of assets
17.14 An item of property, plant or equipment may be acquired in exchange for a
non-monetary asset or assets, or a combination of monetary and non-monetary
assets. An entity shall measure the cost of the acquired asset 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. In that
case, the assetís cost is measured at the carrying amount of the asset given up.
Measurement after initial recognition
17.15 An entity shall measure all items of property, plant and equipment after initial
recognition at cost less any accumulated depreciation and any accumulated
impairment losses. An entity shall recognise the costs of day-to-day servicing of
an item of property, plant and equipment in profit or loss in the period in which
the costs are incurred.
17.16 If the major components of an item of property, plant and equipment have
significantly different patterns of consumption of economic benefits, an entity
shall allocate the initial cost of the asset to its major components and depreciate
each such component separately over its useful life. Other assets shall be
depreciated over their useful lives as a single asset. With some exceptions, such
as quarries and sites used for landfill, land has an unlimited useful life and
therefore is not depreciated.
17.17 The depreciation charge for each period shall be recognised in profit or loss unless
another section of this IFRS requires the cost to be recognised as part of the cost
of an asset. For example, the depreciation of manufacturing property, plant and
equipment is included in the costs of inventories (see Section 13 Inventories).
Depreciable amount and depreciation period
17.18 An entity shall allocate the depreciable amount of an asset on a systematic basis
over its useful life.
17.19 Factors such as a change in how an asset is used, significant unexpected wear and
tear, technological advancement, and changes in market prices may indicate that
the residual value or useful life of an asset has changed since the most recent
annual reporting date. If such indicators are present, an entity shall review its
previous estimates and, if current expectations differ, amend the residual value,
depreciation method or useful life. The entity shall account for the change in
residual value, depreciation method or useful life as a change in an accounting
estimate in accordance with paragraphs 10.15Ė10.18.
17.20 Depreciation of an asset begins when it is available for use, ie when it is in the
location and condition necessary for it to be capable of operating in the manner
intended by management. Depreciation of an asset ceases when the asset is
derecognised. Depreciation does not cease when the asset becomes idle or is
retired from active use unless the asset is fully depreciated. However, under usage
methods of depreciation the depreciation charge can be zero while there is no
17.21 An entity shall consider all the following factors in determining the useful life of
(a) the expected usage of the asset. Usage is assessed by reference to the assetís
expected capacity or physical output.
(b) expected physical wear and tear, which depends on operational factors such
as the number of shifts for which the asset is to be used and the repair and
maintenance programme, and the care and maintenance of the asset while
(c) technical or commercial obsolescence arising from changes or
improvements in production, or from a change in the market demand for
the product or service output of the asset.
(d) legal or similar limits on the use of the asset, such as the expiry dates of
17.22 An entity shall select a depreciation method that reflects the pattern in which it
expects to consume the assetís future economic benefits. The possible
depreciation methods include the straight-line method, the diminishing balance
method and a method based on usage such as the units of production method.
17.23 If there is an indication that there has been a significant change since the last
annual reporting date in the pattern by which an entity expects to consume an
assetís future economic benefits, the entity shall review its present depreciation
method and, if current expectations differ, change the depreciation method to
reflect the new pattern. The entity shall account for the change as a change in an
accounting estimate in accordance with paragraphs 10.15Ė10.18.
Recognition and measurement of impairment
17.24 At each reporting date, an entity shall apply Section 27 Impairment of Assets to
determine whether an item or group of items of property, plant and equipment
is impaired and, if so, how to recognise and measure the impairment loss. That
section explains when and how an entity reviews the carrying amount of its
assets, how it determines the recoverable amount of an asset, and when it
recognises or reverses an impairment loss.
Compensation for impairment
17.25 An entity shall include in profit or loss compensation from third parties for items
of property, plant and equipment that were impaired, lost or given up only when
the compensation becomes receivable.
Property, plant and equipment held for sale
17.26 Paragraph 27.9(f) states that a plan to dispose of an asset before the previously
expected date is an indicator of impairment that triggers the calculation of the
assetís recoverable amount for the purpose of determining whether the asset is
17.27 An entity shall derecognise an item of property, plant and equipment:
(a) on disposal, or
(b) when no future economic benefits are expected from its use or disposal.
17.28 An entity shall recognise the gain or loss on the derecognition of an item of
property, plant and equipment in profit or loss when the item is derecognised
(unless Section 20 Leases requires otherwise on a sale and leaseback). The entity
shall not classify such gains as revenue.
17.29 In determining the date of disposal of an item, an entity shall apply the criteria
in Section 23 Revenue for recognising revenue from the sale of goods. Section 20
applies to disposal by a sale and leaseback.
17.30 An entity shall determine the gain or loss arising from the derecognition of an
item of property, plant and equipment as the difference between the net disposal
proceeds, if any, and the carrying amount of the item.
17.31 An entity shall disclose the following for each class of property, plant and
equipment that was deemed appropriate in accordance with paragraph 4.11(a):
(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) the gross carrying amount and the accumulated depreciation (aggregated
with accumulated impairment losses) at the beginning and end of the
(e) a reconciliation of the carrying amount at the beginning and end of the
reporting period showing separately:
(iii) acquisitions through business combinations.
(iv) transfers to investment property if a reliable measure of fair value
becomes available (see paragraph 16.8).
(v) impairment losses recognised or reversed in profit or loss in
accordance with Section 27.
(vii) other changes.
This reconciliation need not be presented for prior periods.
17.32 The entity shall also disclose the following:
(a) the existence and carrying amounts of property, plant and equipment to
which the entity has restricted title or that is pledged as security for
(b) the amount of contractual commitments for the acquisition of property,
plant and equipment.
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