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| International Accounting standard(IAS) |
What is the International Accounting Standards (IAS-16)? Describes in details :
IAS 16 (International Accounting Standard 16) is a standard issued by the International Accounting Standards Board (IASB) that provides guidelines on property, plant, and equipment (PPE). It outlines the accounting treatment for the recognition, measurement, and depreciation of tangible fixed assets used in the production or supply of goods and services or for administrative purposes.
Key aspects of IAS 16 include:
1.Recognition of Property, Plant, and Equipment:
An asset is recognized as PPE when it is probable that future economic benefits will flow to the company, and its cost can be reliably measured. PPE includes items like land, buildings, machinery, and vehicles used in operations.
2.Measurement at Recognition:
PPE is initially measured at cost, which includes the purchase price, directly attributable costs to bring the asset to its location and condition for use (such as installation, transportation, or legal fees), and any estimated costs of dismantling or restoring the asset.
3.Subsequent Measurement:
After initial recognition, a company can choose between two models for measuring PPE:
Cost Model: The asset is carried at its cost less accumulated depreciation and any impairment losses.
Revaluation Model:
The asset is carried at its fair value (revalued amount) at the revaluation date less any accumulated depreciation and impairment losses. Revaluations should be made regularly to ensure that the carrying amount does not differ significantly from its fair value.
3.Depreciation:
PPE assets, except for land, must be depreciated over their useful lives. Depreciation is the systematic allocation of the asset's cost over its useful life and is recognized as an expense in the income statement.
The depreciation method should reflect the pattern in which the asset’s economic benefits are consumed. Common methods include straight-line depreciation, declining balance, and units of production.
4. Impairment:
If the carrying amount of PPE exceeds its recoverable amount (the higher of fair value less costs to sell and value in use), the asset is impaired, and an impairment loss is recognized in the income statement.
5.De recognition:
An asset is derecognized (removed from the financial statements) when it is disposed of, or when no future economic benefits are expected from its use or disposal. Any gain or loss on de recognition is recognized in the income statement.
In short, IAS 16 provides a framework for recognizing, measuring, depreciating, and disposing of tangible fixed assets, ensuring that financial statements accurately reflect the value and usage of a company’s property, plant, and equipment.