IAS 16 PROPERTY PLANT AND EQUIPMENT Presented by

IAS 16 PROPERTY, PLANT AND EQUIPMENT Presented by Franck Armand Gueby

Objective This presentation aims at giving a general explanation of IAS 16 standard and see its applicability its strengths and weaknesses.

OUTLINE I- HISTORICAL BACKGROUNG OF IA 16 II- OBJECTIVE AND SCOPE OF IAS 16 III-RECOGNITION AND MEASUREMENT IV- MEASUREMENT AFTER RECOGNITION V- DERECOGNITION AND DISCLOSURE VI-STRENGTHS AND WEAKNESSES OF IAS 16

INTRODUCTION International Accounting Standard 16 Property, Plant and Equipment or also known as IAS 16 is an international financial reporting standard adopted by the International Accounting Standards Board (IASB). It is defined as tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and are expected to be used during more than one. This accounting standard actually concerns accounting for property, plant and equipment known more generally as fixed assets, including recognition, determination of their carrying amounts, and the depreciation charges along with impairment lossesx

CONTINUED Our presentation will address all these points by first of all giving a historical background of this standard along with its objective and scope. Then, in the third part of our analysis explain its recognition and measurement together with its measurement after recognition. The last session of our presentation will be dealing with the derecognition and disclosure of the standard and discuss at the time strengths and weaknesses of IAS 16.

HISTORICAL BACKGROUNG OF IA 16 DATE DEVELOPMENT August 1980 Exposure Draft E 18 Accounting for Property, Plant and Equipment in the Context of the Historical Cost System published March 1982 IAS 16 Accounting for Property, Plant and Equipment issued 1 January 1992 Exposure Draft E 43 Property, Plant and Equipment published COMMENTS Operative for financial statements covering periods beginning on or after 1 January 1983

CONTINUED 12 December 2013 Amended by Annual Effective for annual Improvements to periods beginning on IFRSs 2010– 2012 or after 1 July 2014 Cycle (proportionate restatement of accumulated depreciation under the revaluation method) 12 May 2014 Amended Effective for annual by Clarification of periods beginning on Acceptable Methods of or after 1 January 2016 Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) 30 June 2014 Amended Effective for annual by Agriculture: Bearer periods beginning on Plants (Amendments to or after 1 January 2016 IAS 16 and IAS 41)

OBJECTIVE OF IAS 16 The objective of IAS 16 is to prescribe the accounting treatment for property, plant, and equipment. The principal issues are the recognition of assets, the determination of their carrying amounts, and the depreciation charges and impairment losses to be recognized in relation to them.

SCOPE �IAS 16 applies to all PPE except Ø Assets held for sale (IFRS 5) Ø Biological assets (IAS 41) Ø Exploration and evaluation assets (IFRS 6) Ø Investment property (IAS 40) Ø Mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources

RECOGNITION An item of property, plant and equipment is only recognized if : Ø it is probable that the future economic benefits associated with the asset will flow to the entity, and Ø nd the cost of the asset can be measured reliably.

MEASUREMENT Items of property, plant and equipment should be measured at cost, which includes its original purchase price, any costs necessary to bring the asset to the location and condition for its intended use (e. g. site preparation, delivery and handling, installation, related professional fees for architects and engineers), and the estimated cost of dismantling and removing the asset and restoring the site

MEASUREMENT AT RECOGNITION The elements of the initial cost of an item of property, plant and equipment includes all of the costs of acquisition, construction, installation and commissioning. The initial cost excludes promotional, advertising, administrative or general overhead expenses including re-location or operating costs.

MEASUREMENT AT RECOGNITION CONTINUED The cost of an item of property, plant and equipment is the cash equivalent price or, in the case of a item with no cost, its fair value at the date of acquisition.

MEASUREMENT AFTER RECOGNITION AS 16 permits two accounting models for measurement of the asset in periods subsequent to its recognition, namely the cost model and the revaluation model.

MEASUREMENT AT RECOGNITION continued • Under the cost model, the carrying amount of the asset is measured at cost less accumulated depreciation and eventual impairment (similar to the inventory's Lower of cost or market prudent principle). Under the cost model, the impairment is always recognized (debited) as expense.

MEASUREMENT AT RECOGNITION continued Under the revaluation model, the asset is carried at its revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be determined reliably.

DERECOGNITION Items of property, plant and equipment are derecognized on disposal or when no future economic benefit is expected from its use. An entity should recognize any gain or loss on disposal in its income statement. The gain or loss on disposal is the difference between the proceeds received in exchange for the asset disposed and the carrying amount at the time of disposal.

IMPAIRMENT The difference between the determined recoverable amount of an asset and its carrying value will be applied as an impairment loss or reversal. Impairment losses or reversals are applied to individual assets as an 'Impairment Adjustment' in the appropriate period.

DISCLOSURE • IAS 16 requires an entity to disclose in its financial statements for each class of property, plant and equipment: Ø the basis for measuring carrying amount Ø the depreciation method(s) used Ø the useful lives or depreciation rates Ø the gross carrying amount and accumulated depreciation and impairment losses – net foreign exchange differences on translation – other movements

DISCLOSURE CONTINUED a reconciliation of the carrying amount at the beginning and the end of the period, showing: Ø Additions Ø Disposals Ø acquisitions through business combinations Ø revaluation increases or decreases Ø impairment losses Ø reversals of impairment losses Ø depreciation

STRENGTHS AND WEAKNESSES OF IAS 16 deals with the treatment of property, plant, and equipments. In that case, it determines how they should be prices and depreciated. Having said that, we can argue that it strengths include the use of both cost and revaluation model, and precise an amortization calculation. As for the Weaknesses, it can be regarded as the inability to treat cost of new facility or producing new product as being capitalized.

CONCLUSION At the end of our analysis, it appears that IAS 16 is a standard which deals with fixed assets. It in fact helps solve some problems related to the accounting of tangible assets. Having said that, we pointed out in our analysis that it does have some problems that need to be sorted out to better and ease accounting under this standard.