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After comparing the carrying value of the asset with recoverable amount, record the asset at carrying value if recoverable amount is higher and record the impairment if carrying value is less than recoverable amount.
a simple plant for sale doesn't meet the criteria of ifrs5 so it will remain in the balance sheet at the value according to the cost model or fair value model.and if the company want to get it reuse the plant just go for it no accounting will be required
IAS
Property, Plant and Equipment
By: Martin Kelly, BSc (Econ) Hons, DIP. Acc, FCA, MBA, MCMI.
Teaching Fellow in Accounting – Queens University Belfast
Examiner: Professional1 Corporate Reporting
This article the accounting treatment of property, plant and equipment will be of interest to
students at the F2 Financial Accounting, P1 Corporate Reporting and P2 Advanced
Corporate Reporting.
Introduction
IAS refers to tangible non-current assets as property, plant and equipment (PPE) and
recognises that they possess a physical substance, are held for use in the production of
goods or delivery of services or for an administrative purpose, and are expected to be used
for more than one accounting period. In practice this definition causes few problems. PPE
includes freehold and leasehold land, buildings and plant and machinery. The objective of
IAS is to prescribe in relation to PPE the accounting treatment for:
The recognition of assets;
The determination of their carrying amounts; and
The depreciation charges and any losses relating to them.
IAS should be followed when accounting for PPE unless another IAS or IFRS requires a
different treatment. A business should recognise an asset when the risks and rewards
associated with the asset pass to the business. The rewards are their custody, use and a
claim on the benefits arising from the assets. The asset is under the control of the business,
the control is as a direct result of a past transaction or event and future economic benefit will
arise. The risks are the costs of repairs and maintenance and any loss arising from the
asset. There should be an expectation that future economic benefits will flow to the owner
and any costs can be measured reliably. This is in line with the definition of an asset as set
out in the IASB Framework for the Preparation and Presentation of Financial Statements.
The cost of PPE can be measured reliably in the case of an acquired asset by the cost of the
market transaction (purchase price). The directly attributable costs of bringing the asset to
the location and the condition for use will include incidental costs of acquisition, such as
import duties, site preparation and professional fees such as architects’ fees. The inclusion
of these costs should cease once substantially all activities necessary to get the asset ready
for use are completed, even if the asset has not yet been brought into use. Costs that would
be excluded include: cost of opening new facility, administration and general overhead costs
and cost of introducing new products. Where, as a result of the acquisition of an item of
PPE, an obligation arises to dismantle it at the end of its useful life and/or to restore the site,
then that obligation must be recorded as a liability at the same time the asset is recognised
(e.g. decommissioning costs associated with nuclear power stations). In the case of a selfconstructed
asset, the cost of the acquired materials, labour and other costs must be
recognised.
It should be noted that legal ownership of an item of PPE is not a requirement, provided
economic benefits arising from the asset flow to the organisation using the asset. For
example, under IAS leases, an item of PPE held under a finance lease is treated as an
asset belonging to the user (lessee).
