The amendment will also propose deleting the last sentence of the same paragraph. In the example above, the entity should account for the dry. The ifrs interpretations committee has previously considered a number of relevant issues that have been submitted by stakeholders. International accounting standard 16 property, plant and equipment ias 16 replaces ias 16 property, plant and equipment revised in 1998, and should be applied for annual periods beginning on or after 1 january 2005. The international accounting standards board the board is responsible for the preparation and issuance of ifrs standards. Property, plant and equipment is initially measured at its cost, subsequently measured either using a cost or revaluation model, and depreciated so that its depreciable amount is allocated on a systematic basis over its useful life. The entity pays the acquisition price for the land and not for the building. Educational material on ind as 16, property, plant and. No cost is therefore allocated to the parts of the building. Under the matching principle, i believe once the part is placed in service, it should be either expensed if deemed for repairs and maintenance or depreciated if deemed to. The 2011 improvements project amended international accounting standards ias 16 to clarify that major spare parts and standby equipment. The disclosures required under ias 16 for property, plant and equipment, and under ias. Ias 16 applies to property that is, buildings held for use in.
I worked for a global paper company in the past and the policy to deal with such spares was as follows. Ias 16 property, plant and equipment financial analysis. Par 8 spare parts, standby or servicing equipment can be capitalised to property, plant and equipment if they meet the definition of property, plant and equipment, otherwise, they will be recognised as inventory in the financial statements of the entity. Ias 16 property, plant and equipment the board has not undertaken any specific implementation support activities relating to this standard. Similarly, if the spare parts and servicing equipment can be used only in connection with an item of ppe, they are accounted for as property, plant and equipment. Ias 16 property plant and equipment spare parts presented by c. All relevant parts of an asset are identified at the date of initial recognition and the number of identified parts should not vary after the date that the asset is ready for use. In april 2001 the international accounting standards board iasb resolved that all standards and interpretations issued under previous constitutions continued to be applicable unless and until they were amended or withdrawn. Spare parts, standby equipment, servicing equipment recognize as ppe if meet definition of ppe, otherwise classify as inventory. In may 2012 international accounting standards board iasb as part of its annual improvement program 20092011 amended paragraph 8 of ias 16 property, plant and equipment to state that items such as spare parts, standby equipment and servicing equipment are recognized in accordance with this ifrs when they meet the definition of property, plant and equipment. Ias 16 property, plant and equipment martin kelly, bsc.
Pas 16 property, plant and equipment learning competencies state the recognition criteria, initial measurement, and subsequent measurement of ppe. Ias 16 definitions 6 the following terms are used in this standard with the meanings specified. Ias 16 does not include any reference to renewals accounting and, therefore, does not allow any departure from the principle that the depreciation expense is determined by reference to an assets depreciable amount. Educational material on ind as 16, property, plant and equipment. Are held for use in the production or supply of goods or services, for rental to others or for administrative purposes, and are expected to be used during more than one period usually form a major part of the total assets ias 16 deals with. Ias 16 property plant and equipment acca study material. Ias 16 depreciation of spare parts, standby equipment and. Ias 16 provides examples of separate classes of assets including. Key clarifications provided in the faqs on significant implementation issues are as follows. However, major spare parts and standby equipment qualify as property, plant and equipment, if they will be used during more than one period. Spare parts are carried as inventory and charged to income statement as consumed. Alignment with changes made to ias 16 property, plant and equipment on classification of spare parts, standby and servicing equipment, which. Ias 16 sets out two models for measuring ppe subsequent to its initial recognition as an asset. If not, then classify as inventory major spare partsstandby equipment ppe when expected to be used more than one period or it can be used only in connection with an item of ppe.
Ias 16 that was issued in march 1982 also replaced some parts in ias 4 depreciation. Amendments to ifrs for smes 3 section amendment addition of an undue cost or effort exemption to the requirement to recognise intangible assets separately in a business combination and the addition of a disclosure requirement for all entities to provide a qualitative description of the factors that make up any goodwill recognised. Ias 16 that was issued in march 1982 also replaced some parts in ias 4 depreciation accounting that was approved in november 1975. Ias 16 clarification on classification of servicing. Accounting for spare parts martins accounting blog. Depreciation of spare parts, standby equipment and servicing equipment extract, ifrs discussion group report on meeting december 9, 2014 annual improvements 20092011 cycle, issued by the iasb in may 2012, amended paragraph 8 of ias 16 property, plant and equipment to state that items such as spare parts, standby equipment. However, major spare parts and standby equipment qualify as. Ppe is derecognised on disposal or when no future economic benefit is expected from its use or disposal. Revaluations should be made with sufficient regularity to ensure the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. However major spare parts and standby equipments qualify as property, plant and equipment when the entity expects to use them during more than one period. Knowing that the major repairs lead to two situations for two different assets. Module 17 property, plant and equipment focus ifrs.
The constituent referring the issue to the iasb had observed that of ias 16. A building that has no market value is not a recognisable asset. These are the cost model and the revaluation model. How to account for spare parts under ifrs ifrsbox making. I worked for a global paper company in the past and the policy to deal with such spares was. International accounting standard 16 property, plant and.
Ias 16 property, plant and equipment 2017 07 2 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. In 1998, ias 16 revised by ias 36, impairment of assets. International accounting standard 16 property, plant. Ias 16 outlines the accounting treatment for most types of property, plant and. Ias 16 property, plant and equipment martin kelly, bsc econ. How to account for spare parts under ifrs ifrsbox making ifrs.
Ias 16 property, plant and equipment a closer look munich. Ias 16 was reissued in december 2003 and applies to annual periods. However, major spare parts and standby equipment qualify as property, plant and equipment when an entity. Property, plant and equipment are tangible items that. Ias 16 applies to property that is, buildings held for use in the production or supply of goods or. Ppe, properety plant and equipment, ias 16 search search. Ias 40 also applies to investment property that is being redeveloped for continued future use as. If the spare parts can be used only with an item of property, plant and equipment, they are accounted for as property, plant and equipment. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant and equipment as a. Similarly, if the spare parts and servicing equipment can be used. Amendments to ifrs for smes issued january 2017 1 introduction the international accounting standards board iasb has published amendments to its international financial. After a short debate, the committee agreed to propose an annual improvement amendment to ias 16. This is a short executive summary of ias 16 property, plant and equipment get top 7 ifrs mistakes report and email updates at htt.
Ias 16 recognises that parts of some items of ppe may require. The international accounting standards board developed this revised ias 16 as part of its. Oct 29, 2008 ias 16 property, plant and equipment paragraph 7 to 14 regulates the recognition of ppe recognition principle par. Ias 16 outlines the accounting treatment for most types of property, plant and equipment. A practical guide to accounting for property under the cost. Capitalizing something does not necessarily imply it is a depreciable asset. Ec staff consolidated version as of 16 september 2009, en eu ias 16. Land and building are accounted for separately, even when they are acquired together ias 16. The 2011 improvements project amended ias 16 to clarify that major spare parts and standby equipment are recognised as property, plant and equipment if they meet the definition of property, plant and equipment, failing which they are recognised as inventories under ias 2, inventories. The carrying amount of an item of property, plant, and equipment will include the cost of replacing the part of such an item when that cost is incurred if the recognition criteria future benefits and measurement reliability are met. Property, plant and equipment wiley ifrs 2017 interpretation and. March 2017 this communication contains a general overview of the topic and is current as of march 31, 2017 the application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Ias 16 property, plant and equipment to state that items such as spare parts, standby equipment and servicing equipment are recognised in accordance with this ifrs when they meet the definition of property, plant and equipment. Section 16 investment property applies to investment property whose fair value can be measured.
Apr 15, 2017 in april 2001 the international accounting standards board iasb resolved that all standards and interpretations issued under previous constitutions continued to be applicable unless and until they were amended or withdrawn. However, major spare parts and standby equipment qualify as ppe when an entity expects to use them during more than one period. An entity normally includes, in its accounting manual, guidance on when a part is significant. Ias 16 recognises that parts of some items of ppe may require replacement at regular. Ias 16 property plant and equipment spare parts presented by c janse van rensburg. Lkas 16 property, plant and equipment ca sri lanka. Property, plant and equipment wiley interpretation and. The item which meets the following criteria will be. Costs incurred for major inspections for faults regardless of whether parts of the item. The cost of major inspections and replacements of parts should be recognised in the carrying amount of the ppe if the recognition criteria are satisfied. The standard ias 16, paragraph 8 specifically says that spare parts are recognised in. And the cost of the item can be measured reliably cost of spare parts, stand by equipment and servicing equipment. It replaced ias 16 accounting for property, plant and equipment. Upon its inception in 2001, the board adopted the body of international accounting standards ias issued by its predecessor, the international accounting standards committee iasc.
Ias 16 property, plant and equipment summary youtube. A practical guide to accounting for property under the cost model pricewaterhousecoopers 2 introduction ias 16, property, plant and equipment includes guidance on how to account for property carried at cost. Parts replaced at regular intervals recognize new part if recognition criteria met and derecognize the parts replaced. Ias 16 elements of cost 16 the cost of an item of property, plant and equipment comprises. A practical guide to accounting for property under the. Iasb did make the above amendments to include the recognition of spare parts, standby equipment and servicing equipment in accordance with ias 16 however, no detail guidance was provided. Under the cost model an item of ppe is carried at cost less any accumulated depreciation and any accumulated impairment losses. However, major spare parts and standby equipment are.
Spare parts could be used for repairs and maintenance or to extend the lives of fixed assets. Property, plant and equipment comprises tangible assets held by an entity for use in the production or supply of goods or services, for rental to others or for administrative purposes, that are expected to be used for more than one period. The cost of property, plant and equipment will be recorded as an asset if. The revised standard also replaced sic6, sic14 and sic23. Munich personal repec archive ias 16 property, plant and equipment a closer look. Ias 16 establishes principles for recognising property, plant and equipment as assets, measuring their carrying amounts, and measuring the depreciation charges and impairment losses to be recognised in relation to them. Similarly, if the spare parts and equipment can be used only in connection with an item of property, plant and equipment, they are accounted for as property, plant and equipment. Ias 16 asset is a resource which is controlled by the entity, as a result of past event and from which economic benefit are expected to flow to the entity in an ias 16 definition, you have noticed that control term used rather than ownership, this may not be the case every time. Major inspections recognize cost in carrying amount as replacement regardless if. Major inspections recognize cost in carrying amount as replacement regardless if previous inspection was identified in initial. Ppt property, plant and equipment ias 16 powerpoint. Sep 16, 2009 ec staff consolidated version as of 16 september 2009 last eu endorsedamended on 12. However, major spare parts and standby equipment qualify as property, plant and equipment when an entity expects to use them during more than one period.
The first major issue with spare parts is to determine whether they are considered as inventories and thus accounted for under ias 2 inventories, or they are considered as property, plant and equipment and thus accounted for under ias 16 property, plant and equipment. Lkas 16 should be read in the context of its objective, the preface to sri lanka accounting standards and the framework for the preparation and presentation of financial statements. The iasc issued revised ias 16, accounting for property, plant and equipment, in december 1993, as part of the comparability of financial statements. Mar 12, 2012 however major spare parts and standby equipments qualify as property, plant and equipment when the entity expects to use them during more than one period.
The institute of chartered accountants of india icai, on 14 august 2017, issued educational material on ind as 16, which summarises the key requirements in ind as 16 and accounting issues that are expected to arise while implementing ind as 16 in the form of frequently asked questions faqs. Major spare parts qualify as property, plant and equipment when an entity expects to use them during more than one period. Lkas 16 should be read in the context of its objective, the preface to sri lanka accounting standards and the framework for. Accounting of spare parts accounting for aircraft spares is one of the most complicated areas mainly due to the high number of inventory items carried by airlines and the fact that some of these spare items are rehabilitated to a fully serviceable condition after repairs. Ias 16 property, plant and equipment replaced ias 16 accounting for property, plant and equipment issued in march 1982. Ias 16 accounting of spare parts, standby equipment and. Ias 16 is applied in accounting for property, plant and equipment. Before outlining some options, let me describe one experience i had. Property, plant and equipment, which had originally been issued by the international accounting standards committee in december 1993. When the international accounting standards board iasb modified ias 16 to require the allocation of components, it did not anticipate a large change in practice. Ias 16 recognises that parts of some items of property, plant, and equipment may require replacement at regular intervals. Ias 16 property, plant and equipment a closer look.
When each major inspection is performed, its cost is recognised in the carrying amount of the item of ppe as a replacement if the recognition criteria are. Ias 16 property, plant and equipment ias 16 property, plant and equipment 2017 07 1 objective 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 entitys investment in its property, plant and. Sri lanka accounting standard lkas 16 property, plant and equipment is set out in paragraphs 181. Property, plant and equipment and investment property keywords currently, more than 120 countries require or permit the use of international financial reporting standards ifrs, with a significant number of countries requiring ifrs or some form of ifrs by public entities as defined by those specific countries. Apply the principles of pas 16 in basic computations of a ppes cost, depreciation, carrying amount, and revaluation surplus as well as the gain or loss on its disposal. Lkas 40 recognition it is probable that future economic benefits associated with the item will flow to the entity. In december 2003 the board issued a revised ias 16 as part of its initial agenda of technical. Government assistance the carrying amount of an item of property, plant and equipment may be reduced by government grants in accordance with ias 20 accounting for government grants and disclosure of government assistance. International accounting standard 16 property, plant and equipment.