IND AS 16: Property, Plant and Equipments
Applicability and Scope
Ind AS 16 Property Plant Equipment is applicable to all Property and P&E (Plant &
Equipment) unless and until any other accounting standard asks for a different treatment. Ind
AS 16 Property Plant Equipment is not applicable in the following cases: (i) Property and
P&E (Plant & Equipment) which are classified as held for sale as per Ind AS 105 (ii)
Biological assets which are related to agricultural activities except bearer plants (iii) The
measurement and recognition of exploration and evaluation assets (iv) Mineral rights and
reserves like oil, natural gas and other such non-regenerative resources
Recognition
The cost of any item of PPE must be recognized as an asset only when: (a) It is apparent that
the future economic benefits related to such asset would flow to the business; and (b) Cost of
such asset could be reliably measured
Constituents of cost
The cost of the item of PPE includes: (a) The purchase price, which includes the import
duties and any non-refundable taxes on such purchase, after deducting rebates and trade
discounts (b) Costs which are directly attributable to bringing assets to the condition and
location essential for it to operate in a manner as intended by the management (c) Initial
estimate of costs of removing and dismantling an item and restoring a site where it is located
Measurement after recognition
A business must choose cost model or revaluation model as the accounting policy and should
apply such policy to its entire class of PPE.
Cost model
After recognizing an asset, PPE should be carried at the cost as reduced by the accumulated
depreciation and accumulated impairment losses (if any).
Revaluation model
After recognizing an asset, PPE whose fair value could be reliably measured should be
carried at the revalued amount, being the fair value at revaluation date and reduced by
successively accumulated depreciation and successive accumulated impairment losses (if
any). (a) Revaluations must be made with adequate regularity for ensuring that carrying
amount doesn’t differ substantially from that which would be determined if fair value at end
of the reporting period is used (b) In case an item of PPE is revalued, whole class of such
PPE to which such asset belongs should be revalued (c) In case the carrying amount of an
asset increases due to revaluation, such increase should be credited to other comprehensive
income and should be accumulated in equity. However, such increase should be recognized in
P/L statement to the extent of reversal of a revaluation decrease of similar asset recognized
previously in the P/L statement (d) In case the carrying amount of an asset is decreased due to
revaluation, such decrease should be recognized in the P/L statement. However, such
decrease should be debited to other comprehensive income to the extent of credit balances
available in revaluation surplus with respect to such similar asset
Depreciation
Each part of PPE with a cost which is substantial with respect to the total cost of the PPE
should be separately depreciated. The amount of depreciation should be allocated on an
orderly basis over the useful life of an asset. The standard also requires:
1. The method of depreciation used should reflect an asset’s pattern of future economic
benefits
2. At each balance sheet date, three standard requires review of
(i) Residual value and the useful life of assets (ii) Depreciation method employed
Disclosure Requirements
Ind AS 16 prescribes financial statements should disclose, for every class of PPE: (i)
Measurement basis for determining carrying amount (ii) Depreciation methods used (iii)
Depreciation rates/ Useful lives of the assets (iv) Aggregate carrying amount and accrued
depreciation at the start and at the end of period (v) Existence and value of restrictions on the
title and PPE pledged as collateral for liabilities (vi) Amount of expenditure recognized in
carrying amount of an item of PPE during its construction (vii) Amount with respect to
contractual commitment for acquisition of PPE.
