TMI BlogProperty, Plant and EquipmentX X X X Extracts X X X X X X X X Extracts X X X X ..... d equipment classified as held for sale in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations. (b) biological assets related to agricultural activity other than bearer plants (See Ind AS 41, Agriculture). This Standard applies to bearer plants but it does not apply to the produce on bearer plants. (c) the recognition and measurement of exploration and evaluation assets (see Ind AS 106, Exploration for and Evaluation of Mineral Resources). (d) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources. However, this Standard applies to property, plant and equipment used to develop or maintain the assets described in (b) (d). 15 [****] 16 [ 5. An entity accounting for investment property in accordance with Ind AS 40, Investment Property, shall use the cost model in this Standard for owned investment property. ] Definitions 6 The following terms are used in this Standard with the meanings specified: A bearer plant is a living plant that: (a) is used in the production or supply of agricultural produce; (b) is expected to bear produce for more than one perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n asset if, and only if: (a) it is probable that future economic benefits associated with the item will flow to the entity; and (b) the cost of the item can be measured reliably. 8 . Items such as spare parts, stand-by equipment and servicing equipment are recognised in accordance with this Ind AS when they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory. 9 This Standard does not prescribe the unit of measure for recognition, ie what constitutes an item of property, plant and equipment. Thus, judgement is required in applying the recognition criteria to an entity s specific circumstances. It may be appropriate to aggregate individually insignificant items, such as moulds, tools and dies, and to apply the criteria to the aggregate value. 17 [ 10. An entity evaluates under this recognition principle all its property, plant and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. The cost of an item of property, plant and equipme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raph 7, an entity recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if the recognition criteria are met. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition provisions of this Standard (see paragraphs 67 72). 14 A condition of continuing to operate an item of property, plant and equipment (for example, an aircraft) may be performing regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous inspection (as distinct from physical parts) is derecognised. This occurs regardless of whether the cost of the previous inspection was identified in the transaction in which the item was acquired or constructed. If necessary, the estimated cost of a future similar inspection may be used as an indication of what the cost of the existing inspection component was when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a new facility; (b) costs of introducing a new product or service (including costs of advertising and promotional activities); (c) costs of conducting business in a new location or with a new class of customer (including costs of staff training); and (d) administration and other general overhead costs. 20 Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying an item are not included in the carrying amount of that item. For example, the following costs are not included in the carrying amount of an item of property, plant and equipment: (a) costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full capacity; (b) initial operating losses, such as those incurred while demand for the item s output builds up; and (c) costs of relocating or reorganising part or all of an entity s operations. 21 Some operations occur in connection with the construction or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and nonmonetary assets. The following discussion refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an item of property, plant and equipment is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired item is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. 25 An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if: (a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred; or (b) the entity- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment being revalued. When the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is required. Some items of property, plant and equipment experience significant and volatile changes in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years. 35 When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the asset is treated in one of the following ways: (a) the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. For example, the gross carrying amount may be restated by reference to observable market data or it may be restated proportionately to the change in the carrying amount. The accumulated depreciation at the date of the revaluation is adjusted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset s original cost. Transfers from revaluation surplus to retained earnings are not made through profit or loss. 42 The effects of taxes on income, if any, resulting from the revaluation of property, plant and equipment are recognised and disclosed in accordance with Ind AS 12, Income Taxes. Depreciation 43 Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. 19 [ 44. An entity allocates the amount initially recognised in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft. Similarly, if an entity acquires property, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors. 52 Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as long as the asset s residual value does not exceed its carrying amount. Repair and maintenance of an asset do not negate the need to depreciate it. 53 The depreciable amount of an asset is determined after deducting its residual value. In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount. 54 The residual value of an asset may increase to an amount equal to or greater than the asset s carrying amount. If it does, the asset s depreciation charge is zero unless and until its residual value subsequently decreases to an amount below the asset s carrying amount. 55 Depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... useful life and therefore is not depreciated. Buildings have a limited useful life and therefore are depreciable assets. An increase in the value of the land on which a building stands does not affect the determination of the depreciable amount of the building. 59 If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is depreciated over the period of benefits obtained by incurring those costs. In some cases, the land itself may have a limited useful life, in which case it is depreciated in a manner that reflects the benefits to be derived from it. Depreciation method 60 The depreciation method used shall reflect the pattern in which the asset s future economic benefits are expected to be consumed by the entity. 61 The depreciation method applied to an asset shall be reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method shall be changed to reflect the changed pattern. Such a change shall be accounted for as a change in an accounting estimate in accordance with In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with Ind AS 36; (b) derecognition of items of property, plant and equipment retired or disposed of is determined in accordance with this Standard; (c) compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in determining profit or loss when it becomes receivable; and (d) the cost of items of property, plant and equipment restored, purchased or constructed as replacements is determined in accordance with this Standard. Derecognition 67 The carrying amount of an item of property, plant and equipment shall be derecognised: (a) on disposal; or (b) when no future economic benefits are expected from its use or disposal. 20 [68 The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit or loss when the item is derecognised (unless Ind AS 116, Leases, requires otherwise on a sale and leaseback). Gains shall not be classified as revenue.] 6 [68A However, an entity that, in the course of its ordinary activities, routinely sells items of property, plant and equipment that it has held for rental to others shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; and (e) a reconciliation of the carrying amount at the beginning and end of the period showing: (i) additions; (ii) assets classified as held for sale or included in a disposal group classified as held for sale in accordance with Ind AS 105 and other disposals; (iii) acquisitions through business combinations; (iv) increases or decreases resulting from revaluations under paragraphs 31, 39 and 40 and from impairment losses recognised or reversed in other comprehensive income in accordance with Ind AS 36; (v) impairment losses recognised in profit or loss in accordance with Ind AS 36; (vi) impairment losses reversed in profit or loss in accordance with Ind AS 36; (vii) depreciation; (viii) the net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency, including the translation of a foreign operation into the presentation currency of the reporting entity; and (ix) other changes. 74 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution of the balance to shareholders. 78 In accordance with Ind AS 36 an entity discloses information on impaired property, plant and equipment in addition to the information required by paragraph 73(e)(iv) (vi). 79 Users of financial statements may also find the following information relevant to their needs: (a) the carrying amount of temporarily idle property, plant and equipment; (b) the gross carrying amount of any fully depreciated property, plant and equipment that is still in use; (c) the carrying amount of property, plant and equipment retired from active use and not classified as held for sale in accordance with Ind AS 105; and (d) when the cost model is used, the fair value of property, plant and equipment when this is materially different from the carrying amount. Therefore, entities are encouraged to disclose these amounts. 9 [ Transitional Provisions 80 * 80A * 80B * 80C * Effective Date 81 * 81A * 81B * 81C * 81D * 81E * 81F * 81G * 81H * 81I * 81J As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers , paragraphs 68A, 69, 72 are amended. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s defined in paragraph 47 of Ind AS 37 (this includes changes in the time value of money and the risks specific to the liability); and (c) an increase that reflects the passage of time (also referred to as the unwinding of the discount). Accounting Principles 4 Changes in the measurement of an existing decommissioning, restoration and similar liability that result from changes in the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the obligation, or a change in the discount rate, shall be accounted for in accordance with paragraphs 5 7 below. 5 If the related asset is measured using the cost model: (a) subject to (b), changes in the liability shall be added to, or deducted from, the cost of the related asset in the current period. (b) the amount deducted from the cost of the asset shall not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess shall be recognised immediately in profit or loss. (c) if the adjustment results in an addition to the cost of an asset, the entity shall consider whether this is an indication that the new carrying amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognised in profit or loss as a finance cost as it occurs. Capitalisation under Ind AS 23 is not permitted. Appendix B This appendix is an integral part of the Ind AS. Stripping Costs in the Production Phase of a Surface Mine Background 1. In surface mining operations, entities may find it necessary to remove mine waste materials ( overburden ) to gain access to mineral ore deposits. This waste removal activity is known as stripping . 2. During the development phase of the mine (before production begins), stripping costs are usually capitalised as part of the depreciable cost of building, developing and constructing the mine. Those capitalised costs are depreciated or amortised on a systematic basis, usually by using the units of production method, once production begins. 3. A mining entity may continue to remove overburden and to incur stripping costs during the production phase of the mine. 4. The material removed when stripping in the production phase will not necessarily be a total waste; often it will be a combination of ore and waste. The ratio of ore to waste can range from uneconomic low grade to profitable high grade. Removal of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the same as the existing asset. In other words, the nature of this existing asset will determine whether the entity shall classify the stripping activity asset as tangible or intangible. Initial measurement of the stripping activity asset 12. The entity shall initially measure the stripping activity asset at cost, this being the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs. Examples of the types of costs that would be included as directly attributable overhead costs include an allocation of salary costs of the mine supervisor overseeing that component of the mine, and the rental costs of any equipment that was hired specifically to perform the stripping activity. Some incidental operations may take place at the same time as the production stripping activity, but which are not necessary for the production stripping activity to continue as planned. The costs associated with these incidental operations shall not be included in the cost of the stripping activity asset. An example of such type of incidental operations would be buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity. The units of production method shall be applied unless another method is more appropriate. 16. The expected useful life of the identified component of the ore body that is used to depreciate or amortise the stripping activity asset will differ from the expected useful life that is used to depreciate or amortise the mine itself and the related lifeof- mine assets. The exception to this are those limited circumstances when the stripping activity provides improved access to the whole of the remaining ore body. For example, this might occur towards the end of a mine s useful life when the identified component represents the final part of the ore body to be extracted. Appendix C References to matters contained in other Indian Accounting Standards This Appendix is an integral part of the Ind AS. This appendix lists the appendices which are part of other Indian Accounting Standards and make reference to Ind AS 16, Property, Plant and Equipment. 11 [1. Appendix D, Service Concession Arrangements contained in Ind AS 115, Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Indian Accounting Standards. Paragraphs 81 to 81I and 81K related to effective date have not been included in Ind AS 16 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 16, these paragraph numbers are retained in Ind AS 16. ] 28 [ 8. In May, 2020, IASB had issued amendments in IAS 16 on proceeds before intended use to prohibit an entity from deducting from the cost of an item of property, plant and equipment the proceeds from selling items produced while bringing an item of property, plant and equipment to the location and condition necessary for it to be capable of operating in the manner intended by management. These amendments added paragraphs 20A, 74A, 80D and 81N and amended paragraphs 17(e) and 74 of IAS 16. The said amendments have not been made under Ind AS 16, however, paragraph 17(e) has been amended to clarify that excess of net sale proceeds of items produced over the cost of testing, if any, shall not be recognised in the profit or loss but deducted from the directly attributable costs considered as part of cost of an item of property, plant, and equipment. ] **************** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Substituted vide F. No. 01/01/2009-CL-V(Part VI) Dated 28-03-2018 , w.e.f. 1st day of April, 2018, before it was read as, 1 [68A However, an entity that, in the course of its ordinary activities, routinely sells items of property, plant and equipment that it has held for rental to others shall transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets shall be recognised as revenue in accordance with Ind AS 18, Revenue. Ind AS 105 does not apply when assets that are held for sale in the ordinary course of business are transferred to inventories.] 7. Substituted vide F. No. 01/01/2009-CL-V(Part VI) Dated 28-03-2018 , w.e.f. 1st day of April, 2018, before it was read as, 2 [69 The disposal of an item of property, plant and equipment may occur in a variety of ways (eg by sale, by entering into a finance lease or by donation). In determining the date of disposal of an item, an entity applies the criteria in Ind AS 18 for recognising revenue from the sale of goods. Ind AS 17 applies to disposal by a sale and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was read as 4 Other Indian Accounting Standards may require recognition of an item of property, plant and equipment based on an approach different from that in this Standard. For example, Ind AS 17, Leases, requires an entity to evaluate its recognition of an item of leased property, plant and equipment on the basis of the transfer of risks and rewards. However, in such cases other aspects of the accounting treatment for these assets, including depreciation, are prescribed by this Standard. 16. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as 5 An entity accounting for investment property in accordance with Ind AS 40, Investment Property, shall use the cost model in this Standard. 17. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as 10 An entity evaluates under this recognition principle all its property, plant and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as part of the cost of an item of property, plant and equipment in accordance with Ind AS 16; and 23. Omitted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as 3 Appendix C, Determining whether an Arrangement contains a Lease contained in Ind AS 17, Leases. 24. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as 4 The following paragraph numbers appear as Deleted in IAS 16. In order to maintain consistency with paragraph numbers of IAS 16, the paragraph numbers are retained in Ind AS 16: (i) paragraphs 32-33 (ii) paragraph 64 (iii) paragraph 77(c)-(d) 25. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as 10 [7. Paragraphs 80 to 80C of IAS 16 which deals with the transitional provisions have not been included in Ind AS 16 as all transitional provisions related to Ind ASs, wherever considered appropriate have been included in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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