IAS 16, Property, plant and equipment
By Graham Holt
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Property plant and equipment (PPE) are tangible assets that an entity holds for its own use or for rental to others, and that the entity expects to use during more than one period. PPE could be constructed by the reporting entity or purchased from other entities.
Biological assets, intangible assets and investment property are not PPE.…show more content…
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 the income statement so as to prevent 'recycling '.
IAS 16 capitalises subsequent expenditure on an asset using the same criteria as the initial spend; that is, when it is probable that the future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. If part of an asset is replaced, then the part it replaces is derecognised, regardless of whether it has been depreciated separately or not. This is in contrast to certain local generally accepted accounting principles (for example, UK GAAP), which require capitalisation of subsequent expenditure only when the expenditure improves the condition of the asset beyond its previously assessed standard of performance.
The depreciable amount (cost less prior depreciation, impairment and 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.
The residual value of an item of PPE is based on the