Question

I. Define Property, Plant and Equipment as stipulated by IAS 16?

ii. After the initial recognition of property, plant and equipment, IAS 16 recommends two methods which can be used to measure these non -current assets, name the two models?
iii. Identify the main elements that comprise the cost of Property Plant and Equipment?

Answer 1

Property, Plant and Equipment (PPE) refers to tangible assets used by an entity for production or administrative purposes. IAS 16 recommends two methods of measuring PPE:

Step-by-step explanation:

The International Accounting Standard 16 (IAS 16) defines Property, Plant and Equipment (PPE) as tangible assets held by an entity for use in production, delivery, or administrative purposes. PPE includes items such as land, buildings, machinery, equipment, vehicles, and furniture.

After initial recognition, IAS 16 recommends two models to measure PPE:

1. Cost Model: Under this model, PPE is carried at cost less accumulated depreciation and impairment losses. This method is widely used when the future economic benefits from the asset are expected to flow to the entity.
2. Revaluation Model: Under this model, PPE is carried at revalued amount, which is fair value at the date of revaluation less accumulated depreciation and impairment losses. This method is used when the fair value of the asset can be reliably measured.

The main elements that comprise the cost of PPE include the purchase price, any directly attributable costs (such as transportation and installation), initial estimates of dismantling and removal costs, and any borrowing costs directly attributable to the acquisition or construction of the asset.