When is an item property, plant and equipment?
An item is property, plant and equipment when it is tangible, is held for use in producing or supplying goods or services, for rental to others, or for administration, and is expected to be used during more than one period. It is recognised only when future economic benefits are probable and the cost can be measured reliably.
When is the item recognised?
Cost is the cash paid, or the fair value of the other consideration, at acquisition or construction. It includes the purchase price, import duties, and non-refundable purchase taxes, after trade discounts, and the costs directly attributable to bringing the item to the location and condition necessary for it to operate as intended. An estimate of dismantling and site restoration is included where the entity has that obligation. General overheads, the cost of opening a new facility, start-up losses, and costs incurred after the item is already capable of operating are not part of that cost.
Spare parts and servicing equipment are usually inventory. They are property, plant and equipment when they meet the definition, for example a major spare that will be used during more than one period. What counts as one item is a judgement. A later replacement of a part is capitalised when the recognition tests are met, and the carrying amount of the replaced part is derecognised.
How is it carried afterwards?
The entity chooses the cost model or the revaluation model, and applies the choice to a whole class. Under the cost model the item is carried at cost less accumulated depreciation and accumulated impairment. Under the revaluation model it is carried at fair value at the revaluation date, less later depreciation and impairment, and revaluations are made often enough that the carrying amount does not differ materially from fair value.
An increase from a revaluation goes to other comprehensive income and accumulates in equity as a revaluation surplus, except to the extent it reverses a decrease of the same asset previously recognised in profit or loss. A decrease goes to profit or loss, except to the extent of any surplus already standing for that asset. The revaluation does not change the tax base. A temporary difference, and the deferred tax on it, is then an Ind AS 12 question. This page does not set that tax rate.
When does depreciation start?
Depreciation starts when the asset is available for use, and stops at the earlier of the date it is derecognised and the date it is classified as held for sale. Each significant part is depreciated separately. The method reflects the pattern in which the benefits are consumed. Useful life and residual value are reviewed at least at each financial year end. Land with an unlimited useful life is not depreciated. On disposal, or when no future economic benefits are expected, the carrying amount is derecognised and the gain or loss goes to profit or loss. It is not revenue.
Frequently asked questions
Four questions cover the depreciation rate, land, a single revaluation, and a gain on disposal.
Does Ind AS 16 set a depreciation rate?
No. The asset is depreciated over its useful life. The standard does not publish a percentage table. Useful life and residual value are reviewed at each financial year end.
Is land depreciated?
Land with an unlimited useful life is not depreciated. A site that is consumed, such as a quarry, is depreciated over that life.
Must one asset be revalued on its own?
No. If an item is revalued, the whole class to which it belongs is revalued.
Is a gain on disposal revenue?
No. The difference between the net disposal proceeds and the carrying amount is recognised in profit or loss. It is not presented as revenue.
Sources
Property, plant and equipment is Ind AS 16. A revaluation that does not change the tax base can create a temporary difference under Ind AS 12.