International Financial Reporting Standards_guide.pdf

Chapter 10 Property, Plant, and Equipment (IAS 16) 111
10.4.5 Parts of some items of property, plant, and equipment may require replacement at
regular intervals. The cost of such replacement items is included in the carrying amount of the
asset when the recognition criteria are met. The parts being replaced are derecognized when
the derecognition criteria are met. Major inspection costs can be capitalized and any amounts
relating to a previous inspection are derecognized when a new inspection is capitalized.
10.4.6 The cost of an item of property, plant, and equipment includes
■ its purchase price and duties paid;
■ any costs directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in its intended manner, for example professional
fees, installation and assembly costs, initial delivery and handling, and site preparation;
■ the initial estimate of the costs of dismantling and removing the asset and restoring the
site (see IAS 37); and
■ materials, labor, and other inputs for self-constructed assets.
10.4.7 The cost of an item of property, plant, and equipment excludes
■ general and administrative expenses; and
■ start-up costs.
10.4.8 The cost of an item of property, plant, and equipment might include the effects of
government grants (IAS 20) deducted from cost or set-up as deferred income.
10.4.9 When assets are exchanged and the transaction has commercial substance, items are
recorded at the fair value of the asset(s) received, if the fair value can be reliably measured.
In other cases, items are recorded at the carrying amount of the asset(s) given up.
10.4.10 The amount expected to be recovered from the future use (or sale) of an asset,
including its residual value on disposal, is referred to as the value in use. The carrying
amount should be compared with the higher of value in use or fair value less costs to sell
(that is, the recoverable amount) whenever there is an indication of impairment. If the recoverable
amount is lower, the difference is recognized as an expense (IAS 36).
Subsequent Measurement
10.4.11 Choice of cost or fair value. Subsequent to initial recognition, an entity should
choose either the cost model or the revaluation model as its accounting policy for items of
property, plant, and equipment and should apply that policy to an entire class of property,
plant, and equipment.
10.4.12 Under the cost model, the carrying amount of an item of property, plant, and
equipment is its cost less accumulated depreciation and impairment losses. Assets classified
as held for sale are shown at the lower of fair value less costs to sell and carrying value.
10.4.13 In terms of the revaluation model the carrying amount of an item of property,
plant, and equipment is its fair value less subsequent accumulated depreciation and impairment
losses. The revaluation model can be applied if fair value can be reliably measured with
sufficient regularity. Assets classified as held for sale are shown at the lower of fair value less
costs to sell and carrying value.
10.4.14 If an item of property, plant, and equipment is revalued, the entire class of property,
plant, and equipment to which that asset belongs should be revalued. Furthermore, when the
revaluation model is adopted assets should be revalued with sufficient regularity so that the
carrying value does not differ materially from the fair value.