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Chapter 2: Asset Valuation: Accounting for Tangible Fixed Assets
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From International Financial Reporting Standards in Depth, Volume 1: Theory and Practice
2.1 IAS 16 Property, Plant and Equipment (Revised December 2003)ObjectiveIAS 16 prescribes the accounting treatment for property, plant and equipment. Key issues include the initial recognition of cost, the determination of their carrying amounts, and their related depreciation and impairment charges. Key DefinitionsProperty, plant and equipment: tangible assets that are held by an entity for use in the production or supply of goods or services, for rental to others, for administrative purposes and are expected to be used during more than one period. Depreciation: the systematic allocation of the depreciable amount of an asset over its useful life. Accounting TreatmentInitial MeasurementWhether acquired or self-constructed, property, plant etc. should initially be recorded at cost. Only those costs that are directly attributable to bringing an asset into working condition for its intended use are permitted to be capitalised. Capitalisation of costs is also only permitted for the period in which activities are in progress (see IAS 23 Borrowing Costs). Capitalisation of interest is permitted, but the policy must be applied consistently and all finance costs directly attributable to the construction of a tangible fixed asset should be capitalised, provided that they do not exceed the total finance costs incurred during the period. The amount recognised should not exceed an asset's recoverable amount. Subsequent expenditure should normally be expensed (maintenance), but may be capitalised if:
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Topics of Interest
Chapter 3:
Asset Valuation: Accounting for Intangible Assets, Inventories and Construction Contracts
3.1 IAS 38 Intangible Assets (Revised March 2004)
Objective
The objective of IAS 38 is to prescribe the accounting treatment for intangible assets and identify how to recognise an intangible...
Setting Expectations
With the exception of a change in name from tangible fixed assets to tangible non-current assets the fundamentals of accounting for these assets is the same - the devil is in...
Solution 2.1: Broadoak
a. Measuring the Cost of Tangible Non-Current Assets, and Capitalising Subsequent Expenditure
i. How the Initial Cost of Tangible Non-Current Assets Should Be Measured...
Solution 13.1: The Lucky Dairy
Advice to Directors
IAS 41 Agriculture prescribes the accounting treatment, presentation and disclosures related to agricultural activity. A biological asset such...
What constitutes a tangible fixed asset?
In earlier chapters we established that tangible fixed assets share several common features.
They have physical substance
They are for long-term...
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