Property, Plant and Equipment Ind AS-16 Property, Plant and Equipment by CA, D.S. Rawat Partner, Bansal & Co.

Property, Plant & Equipment [PPE] PPE are tangible assets that : are held for use expected to be used more than one period

What it covers Recognition of asset carrying amount Depreciation Impairment

Measurement at recognition Measure the items of PPE at initial recognition at its Cost.

Elements of cost Purchase price Costs directly attributable to bringing the asset to the location & condition Initial estimate of the costs of dismantling & removing the items & restoring the site on which it is located.

Measurement of cost Cash price equivalent at the recognition date if acquired in exchange for non-monetary asset – at fair value PPE held by a lessee under finance lease – as per Ind AS-17

Cost of dismantling/decommissioning The elements of cost to be incorporated in the initial recognition of an asset are to include the estimated costs of its eventual dismantlement (‘decommissioning cost’). That is, the cost of the asset is “grossed up” for these estimated terminal costs, with the offsetting credit being posted to a liability account. It is important to stress that recognition of a liability can only be effected when all the criteria set forth in Ind AS-37 for the recognition in provisions are met. It seems odd to capitalize decommissioning costs that are not going to emerge until later in the asset’s life. However if there is an obligation as a direct consequence of acquiring or constructing property, plant and equipment to incur further costs in the future that cannot be avoided.

Cost of dismantling/decommissioning A provision is recognized in accordance with Ind AS-37. Therefore, the decommissioning costs at the end of the asset’s life are just as much a cost of acquiring or constructing the asset as the costs incurred at the start of the asset’s life. Decommissioning or similar costs such as dismantling expenditure can often arise in connection with operating leases and leasehold improvements.

Measurement after initial recognition – Accounting policy election Cost model Revaluation model

Cost Model At cost less Any accumulated depreciation less Any accumulated impairment losses

Revaluation Model Fair value less Subsequent accumulated depreciation Subsequent accumulated impairment losses

Revaluation Model If an items of PPE is revalued, the entire class of PPE to which that asset belongs shall be revalued.

Revaluation increase/ decrease Increase shall be recognised directly to equity under the heading of revaluation surplus Decrease shall be recognised to profit or loss

Subsequent cost Cost of day-to-day servicing are primarily repairs & maintenance and recognise in profit & loss as incurred. Added in carrying amount of PPE if recognition criteria is met

Impairment Whether an item of PPE is impaired, an entity applied Ind AS-36, “Impairment of Assets”

Compensation for Impairment An entity shall include in profit or loss compensation from third parties for items of PPE that were impaired, lost or given up only when the compensation becomes receivable.

De-recognition An entity shall de-recognise PPE on disposal when no future economic benefits are expected from its use or disposal

Gain & loss on the recognition The gain or loss arising from the de-recognition of an item of PPE shall be included in profit or loss Gain shall not be classified as revenue unless Ind AS-17 requires otherwise on a sale and leaseback

Depreciation Each part of an item PPE with a cost that is significant in relation to the total cost of the item shall be depreciated separately A Building may be split up into the following components: Structural design Elevators Heating system Water system Electrical system

Depreciable amount Allocate the depreciable amount of an asset on a systematic basis over its useful life Review the residual value and the useful life of an asset at lest at each annual reporting date

Depreciation Method The depreciation method used shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity The depreciation method applied to an asset shall be reviewed at least at each financial year end Change shall be accounted for as a change in an accounting estimate in accordance with Ind AS-8 Methods includes the straight-line method, the diminishing balance method and Units of Production method

Disclosure Measurement basis for the gross carrying amount Reconciliation of carrying amount Useful life, depreciation, depreciation rate Accumulated depreciation and impairment Disclosure of revaluation Other number of disclosures

Fair value less cost to sell Binding sale agreement Active market Best estimate based on information

Recoverable amount of an individual asset cannot be determined No impairment loss is recognised for an individual asset if related cash generating unit is not impaired

Impairment loss & Deferred tax If an impairment loss is adjusted in account/financial statement, any related deferred tax assets or liabilities are also to be determined as per Ind AS-12 “Income taxes”

Reversal of a impairment loss Reversal of impairment loss for individual asset other than goodwill Reversal of impairment loss for cash generating unit Reversal of impairment loss for goodwill

Reversal of a impairment loss for individual asset other than goodwill Any increase in the carrying amount of an asset above the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognised for the asset in prior years is a revaluation and should be treated accordingly.

Reversal of impairment loss for cash generating unit A reversal of an impairment loss for a cash generating unit should be allocated to increase the carrying amount of the assets (but never to goodwill) pro-rata with the carrying amount of those assets.

Reversal of a impairment loss on goodwill An impairment loss recognised for goodwill cannot be reversed in a subsequent period

Disclosures For each class of assets Requirement for segment reporting Requirement for cash generating unit Requirement for reversal of impairment loss

THANK YOU CA, D.S.RAWAT Partner, BANSAL & Co.