International Financial Reporting Standards_guide.pdf

118 Chapter 10 Property, Plant, and Equipment (IAS 16)
10.7.2 Determining whether to follow the cost or revaluation model could have a significant
impact on the results of the entity. It would also have a significant impact on the cost,
time, and effort involved in applying this standard.
10.8 FUTURE DEVELOPMENTS
Currently the IASB does not have an active project nor is it conducting research into the accounting
requirements for property, plant, and equipment. Other than minor changes that
may arise as the result of the annual improvements process, no significant changes are expected
to this standard in the near future.
10.9 IMPLEMENTATION DECISIONS
The following table sets out some of the strategic and tactical decisions that should be considered
when applying IAS 16.
Strategic decisions Tactical decisions Problems to overcome
Property, plant, and equipment should
be categorized into classes, for example,
buildings or vehicles, according to the
nature of the assets.
The accounting policy, either cost model
or revaluation model, for the various
asset classes should be determined.
A depreciation policy should be
determined for each asset class.
Determining the residual value of items,
especially in a mining or manufacturing
environment where property, plant,
and equipment makes up a significant
portion of the balance sheet.
Assets with separate components
should be separated into their
components and the components
depreciated separately. The different
components should be identified.
If the revaluation model is selected a
decision should be taken as to how
frequently the revaluation should take
place and what methodology should
be used.
The useful lives and the residual value
of the property, plant, and equipment
should be assessed annually.
Methodology for determining the value
as if the asset was already at the age
and condition as expected at the end of
its useful life.
The identification of property, plant, and
equipment is generally straightforward
and does not result in significant
complexity.
Because of its nature it may be difficult
to determine the fair value of property,
plant, and equipment regularly.
The fixed asset register and system
should be set up to accommodate the
revised carrying amount and recalculate
depreciation based on the new
revalued amount.
The useful lives of assets and their
residual values may change significantly
over the life of the asset and these
changes should be accounted for as
changes in estimates.
The fixed asset register and system
should be set up to accommodate
changes and to recalculate depreciation
in accordance with the revised
information.