IAS 16: Property, Plant and Equipment
Definition:
IAS 16 defines PPE as:
-tangible item
-held for use in:
Production or supply of goods and services
Rental to others
Administrative purposes
-expected to be used more than one period
Initial Measurement:
-PPE should be initially measured at ‘cost’
-Cost should be recognized only if:
It is probable that future economic benefit will flow to the entity
Cost of the item can be measured reliably.
Cost Components:
Purchase price (including import duties and purchase taxes, after
reducing trade discounts)
Directly attributable costs (bringing the asset to the location, making it
capable to be operating in the manner intended by the management)
Dismantling and Restoration Cost (initial estimate off the cost of
dismantling and removing the item and restoring the site on which it is
located)
Any interest on the amounts borrowed for the purpose of constructing
an asset are also included in its cost. (IAS 23)
Examples of directly attributable costs:
cost of employee benefits arising directly from the construction or
acquisition of PPE
cost of site preparation
initial delivery and handling costs
installation and assembly costs
costs of testing whether the asset is functioning properly (here, when we
test a machine, in order to know if the machine is functioning properly,
we run the production process. Materials will be required; labour will be
required to run the whole production process. So, the material and
labour costs will be shown as expenses in SOPL, and the end products
