FRS 16 prescribes the accounting treatment for property, plant and equipment.
Property, plant and equipment are tangible assets that are in use for more than one accounting period. Cost of property, plant and equipment comprise:-
- its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
- 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.
- 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 purpose other than to produce inventories during that period.
Property, plant and equipment are initially recorded at cost. Subsequently, they can be carried either
- Cost less any accumulated depreciation and any accumulated impairment losses; or
- Revalued amount (Fair value at the date of revaluation), less any accumulated depreciation and any accumulated impairment losses.
If option (b) is chosen, all assets within a class of property, plant and equipment must be revalued and the valuations must be updated regularly.
A revaluation increase shall be credited directly to equity as revaluation surplus, unless it reverses a revaluation decrease of the same asset previously recognized in profit or loss.
A revaluation decrease shall be recognized in the profit or loss. However, the decrease is debited directly to revaluation surplus in equity to the extent of the credit balance in revaluation surplus.
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The residual value and the useful life of an asset should be reviewed at least at each financial year-end. If expectations differ from previous estimates, (FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors) is applied.
Impairment is recognised in accordance with FRS 36 Impairment of Assets.
The gain or loss on the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and is included in the profit or loss.
FRS 16 specifies disclosures about property, plant and equipment.
Source – ICPAS ePublication Issue 3/2006 17 Jan 2006