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Thread: 08 - Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

  1. #1
    IND-AS
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    Thumbs up 08 - Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment


    (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles. )


  2. #2
    IND-AS
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    Thumbs up Objective of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Objective of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment


    Objective

    1. 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 issu es 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 recognised in relation to them.


  3. #3
    IND-AS
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    Thumbs up Scope of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Scope of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)


    Property, Plant and Equipment


    Scope

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

    3. This Standard does not apply to:

    (a) property, plant and equipment classified as held for sale in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations;
    (b) biological assets related to agricultural activity (See Ind AS 41, Agriculture1);
    (c) the recognition and measurement of exploration and evaluation assets
    (see Ind AS 106 Exploration for and Evaluation of Mineral Resources ); or
    (d) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

    However, this Standard applies to property, plant and equipment used to develop or maintain the assets described in (b)–(d).

    4. Other Indian Accounting Standards may require recognition of an item of property, plant and equipment based on an approach different from that in this Standard. For example, Ind AS 17 Leases requires an entity to evaluate its recognition of an item of leased property, plant and equipment on the basis of the transfer of risks and rewards. However, in such cases other aspects of the accounting treatment for these assets, including depreciation, are prescribed by this Standard.

    5. An entity accounting for investment property in accordance with Ind AS 40 Investment Property shall use the cost model in this Standard.

    Note-
    1 Indian Accounting Standard (Ind AS ) 41, Agriculture, is under formulation.

    Last edited by IND-AS; 01-02-2011 at 03:28 PM.

  4. #4
    IND-AS
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    Thumbs up Definitions of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Definitions of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)


    Property, Plant and Equipment


    Definitions

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

    Carrying amount is the amount at which an asset is recognised 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 recognised in accordance with the specific requirements of other Indian Accounting Standards, eg Ind AS 102 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 amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.

    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 to sell 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.


  5. #5
    IND-AS
    Guest

    Thumbs up Recognition of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Recognition of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)


    Property, Plant and Equipment



    Recognition

    7. The cost of an item of property, plant and equipment shall be recognised 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.

    8. Spare parts and servicing equipment are usually carried as inventory and recognised in profit or loss as consumed. However, major spare parts, stand -by equipment and servicing equipment qualify as property, plant and equipment when an entity expects to use them during more than one period..

    9. This Standard does not prescribe the unit of measure for recognition, ie what constitutes an item of property, plant and equipment. Thus, judgement is required in applying the recognition criteria to an entity’s specific circumstances. It may be appropriate to aggregate individually insignificant items, such as moulds, tools and dies, and to apply the criteria to the aggregate value.

    10. An entity evaluates under this recognition principle all its 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.



  6. #6
    IND-AS
    Guest

    Thumbs up Initial costs of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Initial costs of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)


    Property, Plant and Equipment


    Initial costs

    11. Items of property, plant and equipment may be acquired for safety or environmental reasons. The acquisition of such property, plant and equipment, although not directly increasing the future economic benefits of any particular existing item of property, plant and equipment, may be necessary for an entity to obtain the future economic benefits from its other assets. Such items of property, plant and equipment qualify for recognition as assets because they enable an entity to derive future economic benefits from related assets in excess of what could be derived had those items not been acquired. For example, a chemical manufacturer may install new chemical handling processes to comply with environmental requirements for the production and storage of dangerous chemicals; related plant enhancements are recognised as an asset because without them the entity is unable to manufacture and sell chemicals. However, the resulting carrying amount of such an asset and related assets is reviewed for impairment in accordance with Ind AS 36 Impairment of Assets.



  7. #7
    IND-AS
    Guest

    Thumbs up Subsequent costs of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Subsequent costs of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)


    Property, Plant and Equipment


    Subsequent costs

    12. Under the recognition principle in paragraph 7, an entity does not recognise in the carrying amount of an item of property, plant and equipment the costs of the day-to-day servicing of the item. Rather, these costs are recognised in profit or loss as incurred. Costs of day-to-day servicing are primarily the costs of labour and consumables, and may include the cost of small parts. The purpose of these expenditures is often described as for the ‘repairs and maintenance’ of the item of property, plant and equipment.

    13. Parts of some items of property, plant and equipment may require replacement at regular intervals. For example, a furnace may require relining after a specified number of hours of use, or aircraft interiors such as seats and galleys may require replacement several times during the life of the airframe. Items of property, plant and equipment may also be acquired to make a less frequently
    recurring replacement, such as replacing the interior walls of a building, or to make a nonrecurring replacement. Under the r ecognition principle in paragraph 7, an entity recognises in 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 recognition criteria are met. The carrying amount of t hose parts that are
    replaced is derecognised in accordance with the derecognition provisions of this Standard (see paragraphs 67–72).

    14. 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 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 inspection (as distinct from physical parts) is derecognised. This occurs regardless of whether the cost of the previous 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.



  8. #8
    IND-AS
    Guest

    Thumbs up Measurement at recognition of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Measurement at recognition of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment


    Measurement at recognition


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

    Elements of cost

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

    (a) its purchase price, including impor t 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.

    17. Examples of directly attributable costs are:

    (a) costs of employee benefits (as defined in Ind AS 19 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) installation and assembly costs;
    (e) costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any i tems produced while bringing the asset to that location and condition (such as samples produced when testing equipment); and
    (f) professional fees.

    18. An entity applies Ind AS 2 Inventories to the costs of obligations for dismantling, removing and restoring the site on which an item is located that are incurred during a particular period as a consequence of having used the item to produce inventories during that period. The obligations for costs accounted for in accordance with Ind AS 2 or Ind AS 16 are recognised and measured in accordance with Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.

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

    (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); and
    (d) administration and other general overhead costs.

    20. Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying an item are not included in the carrying amount of that item. For example, the following costs are not included in the carrying amount of an item of property, plant and equipment:

    (a) costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full capacity;
    (b) initial operating losses, such as those incurred while demand for the item’s output builds up; and
    (c) costs of relocating or reorganising part or all of an entity’s operations.

    21. Some operations occur in connection with the construction or development of an item of property, plant and equipment , but are not necessary to bring the item to the location and condition necessary for it to be capable o f operating in the manner intended by management. These incidental operations may occur before or during the construction or development activities. For example, income may be earned through using a building site as a car park until construction starts. Because incidental operations are not necessary to bring an item to the location and condition necessary for it to be capable of operating in the manner intended by management, the income and related expenses of incidental operations are recognised in profit or loss and included in their respective classifications of income and expense.

    22. The cost of a self-constructed asset is determined using the same principles as for an acquired asset. If an entity makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of constructing an asset for sale (see Ind AS 2). Therefore, any internal profits are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of wasted material, labour, or other resources incurred in self -constructing an asset is not included in the cost of the asset. Ind AS 23 Borrowing Costs establishes criteria for the recognition of interest as a component of the carrying amount of a self-constructed item of property, plant and equipment.

    Last edited by IND-AS; 01-02-2011 at 03:58 PM.

  9. #9
    IND-AS
    Guest

    Thumbs up Measurement of cost of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Measurement of cost of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment



    Measurement at recognition


    Measurement of cost

    23. 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 recognised as interest over the period of credit unless such interest is capitalised in accordance with Ind AS 23.

    24. 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 derecognise 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.

    25. An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if:

    (a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred; or
    (b) the entity-specific value of the portion of the entity’s operations affected by the transaction changes as a result of the exchange; and
    (c) the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

    For the purpose of determining whether an exchange transaction has commercial substance, the entity-specific value of the portion of the entity’s operations affected by the transaction shal l reflect post-tax cash flows. The result of these analyses may be clear without an entity having to perform detailed calculations.

    26. The fair value of an asset for which comparable market transactions do not exist is reliably measurable if (a) the vari ability in the range of reasonable fair value estimates is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used in estimating fair value. If an entity is able to determine reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident.

    27. The cost of an item of property, plant and equipment held by a lessee under a finance lease is determined in accordance with Ind AS 17.

    28. The carrying amount of an item of property, plant and equipment may be reduced by government grants in accordance with Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance.


  10. #10
    IND-AS
    Guest

    Thumbs up Measurement after recognition of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Measurement after recognition of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment


    Measurement after recognition

    29. An entity shall choose either the cost model in paragraph 30 or the revaluation model in paragraph 31 as its accounting policy and shall apply that policy to an entire class of property, plant and equipment.


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