IAS 16 Property Plant and Equipment

IAS 16 prescribes the accounting treatment for property, plant, and equipment (PPE), including recognition, measurement, depreciation, and disclosures.

Are held for use in production, supply of goods/services, rental, or administrative purposes.
Have an expected useful life of more than one year.

✅ Future economic benefits are probable, and
✅ The cost of the asset can be measured reliably.

PPE is initially measured at cost, which includes:

Purchase price (less any trade discounts)
Directly attributable costs (e.g., installation, legal fees)
Dismantling and restoration costs, if applicable

Cost Model – PPE is carried at cost less accumulated depreciation and impairment.
Revaluation Model – PPE is carried at fair value, with revaluation gains/losses recognized in equity.

✅ Gains → Recognized in Other Comprehensive Income (OCI) and accumulated in revaluation surplus.
❌ Losses → Recognized in profit or loss, unless reversing a previous gain.

: Depreciation is the systematic allocation of an asset’s depreciable amount over its useful life.

Straight-line – Equal depreciation each year.
Reducing balance – Higher depreciation in earlier years.
Units of production – Based on asset usage (e.g., machine hours).

Changes should be prospectively adjusted (i.e., applied in future periods, not retrospectively).

✅ Sold or disposed of, OR
✅ No longer expected to generate future economic benefits.

Any gain or loss on disposal is recognized in profit or loss.

The cost of an asset, or other amount substituted for cost, less its residual value

: Impairment occurs when the asset’s recoverable amount falls below its carrying amount. The loss is recognized in profit or loss unless the asset was previously revalued.

CapEx: Costs that improve the asset or extend its useful life (capitalized).
OpEx: Costs for maintenance and repairs (expensed immediately).

📌 Measurement method (Cost or Revaluation Model)
📌 Depreciation method and useful lives
📌 Carrying amount of each PPE class
📌 Reconciliation of carrying amounts (additions, disposals, depreciation, revaluations)
📌 Any impairment losses or reversals

1. If an asset is revalued, any accumulated depreciation up o the date of the revaluation should be reversed. This will increase the revaluation surplus.
2. Depreciation will then be calculated based on the revalued amount
3. Revaluations must be made for the whole of the class of assets, ie if we revalue one building we must revalue the whole of the class of buildings at the same time.
4. The frequency of the revaluations will depend upon the volatility of the fair values of the asset class. the more volatile, the more frequent the revaluation.

1. Restate asset cost to the revalued amount
2. Remove any existing accumulated depreciation
3.Transfer the increase in the cost account and the existing accumulated depreciation to the revaluation surplus account within equity
4. recalculate current years depreciation on the revalued amount if applicable

DR Asset cost (revalued amount - original cost)
DR Accumulated depreciation (depreciation up to the revaluation date - at this point the balance of this account will be nil)
CR Revaluation surplus (revalued amount - previous carrying amount)

DR revaluation surplus (only to reverse the previous revaluation upwards)
DR P/L (with any excess once revaluation increase is reversed)
CR PPE - cost account

Only on a depreciable asset - you can only transfer the increase in yearly depreciation amount (ie because new depreciation is calculated on revalued amount over the remainder of useful life, if it was £1000 per year and is now £2000 per year you can transfer £1000 er year from revaluation surplus to retained earnings.

Dr revaluation surplus
CR retained earnings ( both on statement of changes in equity so does not affect profit)

If you sell the asset (along with the usual sales entries) to remove the surplus

Dr revaluation surplus
CR retained earnings ( both on statement of changes in equity so does not affect profit)

surveyor/ professional, can't do it yourself