International Financial Reporting Standards_guide.pdf

110 Chapter 10 Property, Plant, and Equipment (IAS 16)
applicable, another standard may attribute an amount for the cost of an asset, for example
IFRS 2 if the property, plant, and equipment is acquired as part of a share-based payment
transaction.
10.3.3 Fair value is the amount for which an asset could be exchanged between knowledgeable,
willing parties in an arm’s-length transaction.
10.3.4 Carrying amount is the amount at which an asset is recognized after deducting any
accumulated depreciation and impairment losses.
10.3.5 Depreciable amount is the cost of an asset, or other amount substituted for cost, less
its residual value.
10.3.6 Depreciation is the systematic allocation of the depreciable amount of an asset over
its useful life.
10.3.7 An impairment loss is the amount by which the carrying amount of an asset exceeds
its recoverable amount. Recoverable amount is the higher of an asset’s net selling price and
its value in use. (See also IAS 36 for guidance on impairment.)
10.3.8 The residual value of an asset is the estimated amount that an entity would currently
obtain from disposal of the asset, after deducting the estimated costs of disposal (assuming
the asset is already of the age and in the condition expected at the end of its useful life). If the
intent is to scrap an asset, it will have no residual value.
10.3.9 Useful life is the intended period over which an asset is expected to be available for
use by an entity, or the number of production or similar units expected to be obtained from
the asset by an entity.
10.4 ACCOUNTING TREATMENT
Initial Measurement
10.4.1 An item of property, plant, and equipment should be recognized as an asset only if
■ it is probable that future economic benefits associated with the item will flow to the
entity; and
■ the cost of the item can be reliably measured.
10.4.2 Property, plant, and equipment is initially recognized at cost. The standard does not
prescribe the unit of account for property, plant, and equipment and judgment is required in
applying the recognition criteria to the entity’s specific circumstances. It may be appropriate
to aggregate insignificant items such as molds and tools and apply the criteria to the aggregated
amount.
10.4.3 Safety and environmental assets qualify as property, plant, and equipment if they
enable the entity to increase future economic benefits from related assets in excess of what it
could derive if they had not been acquired (for example, chemical protection equipment).
10.4.4 Costs incurred in respect of day-to-day servicing are recognized in profit or loss as
incurred and are not capitalized to the property, plant, and equipment. Spare parts and servicing
equipment are usually carried as inventory and recognized in profit in loss when
consumed.