Register now or log in to join your professional community.
Recognition Criteria
PPE should be recorded when;
It is probable that economic benefits will flow towards company
Cost can be measured reliably.
Initial measurement
Initially asset should be recorded at cost and cost include all elements necessary to bring the asset to working condition for its intended use.
Subsequent measurement is as explained in other posts
IAS16 permits two accounting models:
Under the revaluation model, revaluations should be carried out regularly, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. [IAS16.31]
If an item is revalued, the entire class of assets to which that asset belongs should be revalued. [IAS16.36]
Revalued assets are depreciated in the same way as under the cost model (see below).
If a revaluation results in an increase in value, it should be credited to other comprehensive income and accumulated in equity under the heading "revaluation surplus" unless it represents the reversal of a revaluation decrease of the same asset previously recognised as an expense, in which case it should be recognised in profit or loss. [IAS16.39]
A decrease arising as a result of a revaluation should be recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. [IAS16.40]
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 profit or loss. [IAS16.41]
For all depreciable assets:
The depreciable amount (cost less residual value) should be allocated on a systematic basis over the asset's useful life [IAS16.50].
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 IAS8. [IAS16.51]
The depreciation method used should reflect the pattern in which the asset's economic benefits are consumed by the entity [IAS16.60];
The depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits has changed, the depreciation method should be changed prospectively as a change in estimate under IAS8. [IAS16.61]
Depreciation should be charged to profit or loss, unless it is included in the carrying amount of another asset [IAS16.48].
Depreciation begins when the asset is available for use and continues until the asset is derecognised, even if it is idle. [IAS16.55]
In Financial Reporting and IFRS, the cost of PPE shall be recognised as an asset if and only if:
-It is probable that Future economic benefits will flow towards the company
-Cost of an item of property can be measured reliably.
