IAS 16 PPE

Question 1

What is the definition of IAS 16 PPE

Answer 1

PPE are tangible assets that:

• Are held by an entity for the use in supply of goods or services, for rental to others, or for administrative purposes, and
• Are expected to be used during more than one period.

Question 2

How is PPE recognised initially

Answer 2

In accordance with IAS 16 PPE an asset should be recognised when:

• It is probable that future economic benefits will flow to the entity and
• The cost of the asset can be measured reliably

In accordance with IAS 16 PPE, the asset should be measured at its cost. This should include:

• Its purchase price
• Directly attributable costs to bring the asset to the location and condition necessary for it to be capable of operating for its intended use, i.e. site preparation, initial delivery costs, installation costs, testing costs, professional fees
• The initial estimate of the cost of dismantling and removing the item and restoring the site, where there is an obligation to incur such costs

Question 3

When can subsequent expenditure be capitalised

Answer 3

When can subsequent expenditure be capitalised

In accordance with IAS16 PPE, subsequent expenditure can be capitalised when:

• The expenditure improves the future economic benefits that the asset will generate
• It replaces a component of an asset and the carrying amount of the component replaced is derecognised, e.g. overhaul of a furnace or a roof (where both are separately identified as assets)
• It is the cost of a major inspection for faults and the carrying amount of the previous inspection is derecognised