ACBP6221 LU3
ACBP6221 LU3 – IAS16 – Property,
plant and equipment
Property, Plant and Equipment
Land and Buildings Vehicles Equipment Total
Carrying Value
Cost price
Accumulated depreciation
Movements in the year
Additions
Disposals
Depreciation
Carrying value at the end of the year
Cost price
Accumulated depreciation
3.1 Introduction
Size of PPE will depend on the size of the business:
- Manufacturing
o PPE will make up a large portion of total assets
o Machinery will be a major part of PPE
- Service orgs
o PPE will be a small percentage of total assets
o Office equipment will make up most of PPE
PPE are tangible assets that are:
- Held for use in the production or supply of g/s
- Held for rental to others
- Held for admin purposes
- Are expected to be used during more than 1 period
PPE can be anything an entity owns, but cannot be immediately converted into cash
- Buildings, machinery, office furniture, equipment
PPE can provide important insights to users on financial statements – how effective the
investment in PPE are being used to generate income
,ACBP6221 LU3
3.2 Objectives and scope
3.2.1 Objectives
IAS16 PPE prescribes the treatment for PPE in order for users to evaluate info about an
entity’s investment in PPE and changes in such investment
IAS16 sets out requirements for:
- Recognition of items of PPE
- Calculation of the carrying amounts of recognised PPE
- Calculation of any subsequent depreciation charges and impairment losses to be
recognised in relation to recognised PPE
3.2.2 Scope
IAS16 should be applied in accounting for PPE expect when another IFRS allows allows a
different accounting treatment.
IAS16 does not apply to:
- Assets classified as held for sale
- Biological assets related to agricultural activity
- exploration and evaluation assets
- mineral rights and mineral reserves such as oil, natural gas and similar non-
regenerative resources
3.3 Key Terms
Cost
The amount of cash paid or fair value of other consideration given to acquire an asset at
time of acquisition or construction.
Residual Value
The estimated amount currently obtainable from the disposal of an asset, after deducting the
estimated costs of disposal, as if the asset were already of the age and condition expected
at the end of its useful life.
Useful life
Either the:
- period over which the asset is expected to be available for use by an entity
- number of production units expected to be obtained from the asset.
Depreciable Amount
The cost of an asset less its residual value.
Depreciation
The systematic allocation of the depreciable amount of an asset over its useful life.
Carrying Amount
The amount at which an asset is recognised less any accumulated depreciation amount and
accumulated impairment losses.
, ACBP6221 LU3
Fair value
The price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
3.3.1 Classes of property, plant and equipment
A Class of PPE is a grouping of assets of a similar nature and use in an entities operations.
Examples of separate classes of PPE:
Land Land and buildings Machinery
Ships Aircraft Cars
Furniture and fixtures Office Equipment
Example 3.1
X, a movie production company, has many different types of property, plant and equipment,
summarised as follows:
Asset class/category Types of assets in class Location
Camera equipment Lenses, tripods, DSLR Production warehouse
cameras, exposure meters,
diffusers, reflectors, ball
heads, storage boxes,
lighting fixtures
Props Forest backgrounds, Production warehouse
homestead backgrounds,
city landscapes, interior
landscapes, prop storage
boxes
IT hardware LCD screens, keyboards, Production warehouse
laptops, printers, copiers, Admin Office
mice, projectors
Motor vehicles Trailers, HGV, LGV, sedans Parking areas A and B
X has grouped its many types of assets, from vehicles to cameras, into asset classes based
on their similar nature and use.
ACBP6221 LU3 – IAS16 – Property,
plant and equipment
Property, Plant and Equipment
Land and Buildings Vehicles Equipment Total
Carrying Value
Cost price
Accumulated depreciation
Movements in the year
Additions
Disposals
Depreciation
Carrying value at the end of the year
Cost price
Accumulated depreciation
3.1 Introduction
Size of PPE will depend on the size of the business:
- Manufacturing
o PPE will make up a large portion of total assets
o Machinery will be a major part of PPE
- Service orgs
o PPE will be a small percentage of total assets
o Office equipment will make up most of PPE
PPE are tangible assets that are:
- Held for use in the production or supply of g/s
- Held for rental to others
- Held for admin purposes
- Are expected to be used during more than 1 period
PPE can be anything an entity owns, but cannot be immediately converted into cash
- Buildings, machinery, office furniture, equipment
PPE can provide important insights to users on financial statements – how effective the
investment in PPE are being used to generate income
,ACBP6221 LU3
3.2 Objectives and scope
3.2.1 Objectives
IAS16 PPE prescribes the treatment for PPE in order for users to evaluate info about an
entity’s investment in PPE and changes in such investment
IAS16 sets out requirements for:
- Recognition of items of PPE
- Calculation of the carrying amounts of recognised PPE
- Calculation of any subsequent depreciation charges and impairment losses to be
recognised in relation to recognised PPE
3.2.2 Scope
IAS16 should be applied in accounting for PPE expect when another IFRS allows allows a
different accounting treatment.
IAS16 does not apply to:
- Assets classified as held for sale
- Biological assets related to agricultural activity
- exploration and evaluation assets
- mineral rights and mineral reserves such as oil, natural gas and similar non-
regenerative resources
3.3 Key Terms
Cost
The amount of cash paid or fair value of other consideration given to acquire an asset at
time of acquisition or construction.
Residual Value
The estimated amount currently obtainable from the disposal of an asset, after deducting the
estimated costs of disposal, as if the asset were already of the age and condition expected
at the end of its useful life.
Useful life
Either the:
- period over which the asset is expected to be available for use by an entity
- number of production units expected to be obtained from the asset.
Depreciable Amount
The cost of an asset less its residual value.
Depreciation
The systematic allocation of the depreciable amount of an asset over its useful life.
Carrying Amount
The amount at which an asset is recognised less any accumulated depreciation amount and
accumulated impairment losses.
, ACBP6221 LU3
Fair value
The price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
3.3.1 Classes of property, plant and equipment
A Class of PPE is a grouping of assets of a similar nature and use in an entities operations.
Examples of separate classes of PPE:
Land Land and buildings Machinery
Ships Aircraft Cars
Furniture and fixtures Office Equipment
Example 3.1
X, a movie production company, has many different types of property, plant and equipment,
summarised as follows:
Asset class/category Types of assets in class Location
Camera equipment Lenses, tripods, DSLR Production warehouse
cameras, exposure meters,
diffusers, reflectors, ball
heads, storage boxes,
lighting fixtures
Props Forest backgrounds, Production warehouse
homestead backgrounds,
city landscapes, interior
landscapes, prop storage
boxes
IT hardware LCD screens, keyboards, Production warehouse
laptops, printers, copiers, Admin Office
mice, projectors
Motor vehicles Trailers, HGV, LGV, sedans Parking areas A and B
X has grouped its many types of assets, from vehicles to cameras, into asset classes based
on their similar nature and use.
