Ind AS 16

1
CA NIKHIL GUPTA |BUSINESS CONSULTANT| PUBLIC SPEAKER
CA NIKHIL GUPTA| 9958381830 caniikhilgupta@gmail.com

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Property, Plant & Equipment

Session Highlights
1. Applicability
2. Definition
3. Recognition
4. Cost
5. Valuation Policy
6. Depreciation
7. Revaluation
8. De-recognition
9. Disclosure, Others & First time adoption
10.Deemed Cost Exemption
11.Schedule II
12.Extra Shift Depreciation
3

Applicability
✓ Accounting for all property, plant and equipment unless another Standard requires or permits a different
accounting treatment.
EXCEPTIONS:
➢ Biological Assets other than Bearer plants
➢ Financial Instruments (IND AS- 109, 32, 107)
➢ Exploration & evaluation assets (Guidance Note). Example – Mines, quarries, oil
fields
Note : Asset used in mining are covered in this IND AS, but mines are excluded.
➢ Property, Plant & Equipment's held for Sale. (IND AS 105)
➢ Investment Property
➢ IR under Business Combinations
Note : Owner occupied investment property is accounted under IND AS 116, Cost Model
4

Definition
Spare parts, Stand by equipment are recognized as PPE when they meet the
above definition of PPE 5

Recognition
1. Future
Economic
Benefits flow
to Enterprise
2.Cost is
measurable
3. Tangible
4. Held for
more than
12 months
5. Held for
Use
➢ Cost of an item of PPE will be recognized as an asset PPE (Asset) if:
6

7
PPE ( Recognition Conditions)
Cost of PPE will be recognized as an “Asset”
Future Economic
Benefits
Measurable Cost
F.E.B expected from PPE
to flow to the enterprise
F.E.B Flow to enterprise
Expected to be
earned/Probable
to be generated
Item should be
under “Control”
of entity
If cost is not
reliably
measurable, asset
will not be
recognized
Is to exist in substance evidence of control
(not conclusive):
➢ Legal Ownership
➢ Right to Sale
➢ Right to prevent others from using
➢ Right to mortgage
These 2 are common
conditions for recognizing
any expenditure as asset

Spare Parts
➢ If Spare parts meets the recognition criteria for PPE then recognized as PPE else
inventory.
➢ Spare parts purchased along with PPE should form part of cost of PPE. Component
accounting is relevant.
➢ Spare parts purchased separately, if recognized as PPE, should be separately
recognized ( Separate from PPE)
ICAI Clarification
Spare Parts
Life <1 Period Life >1 Period
Inventory
PPE, Provided other
conditions are met
One which qualify as PPE will be
recognized as PPE & Depreciation over its
useful life will be derived from life of asset
8

Spare Parts
• Trade Parlance : Insurance Spares (Measurement at reporting)
❖ Spares of :
a) Significant Value
b) Only Specific use associated with its assets, and
c) Very unlikely to be used during the life of its asset
❖ Such Spares, like other spares with Life > 12 months, will be recognized as
PPE & depreciated from date when its ready to use , even if it is not installed
& put to use. Life of such spare part will be usually equal to life of the PPE
to which such spare belongs.
9

COST of PPE
Purchase Cost
Purchase Price
-
Trade Discount (Excluding
recoverable Taxes)
➢ Trade Discount : Discount given at the time of Sale/ Purchase
➢ RE- Negotiation : Subsequent discount on accounting of renegotiation of price.
Usually when price originally was provisionally decided, quality discount, volume
discounts, etc
➢ Recoverable Taxes: Not added to the cost as it does not represent cost to the
enterprise but in the nature of prepaid taxes, Taxes, Non-recoverable for entity,
will be added to the cost of asset.
Initial Cost
10

Discounts
Given at the time of Purchase Subsequent Discounts
Reduce From cost of PPE Cash Discount Other
If it represents interest
element
Else (Rare)
Reduce from the cost of PPE
initially itself. Consequently if such
cash discount is not availed then it
will be recognized as Interest
Expense in P/L
Treated as Discount
Income
If it represents re-
negotiation of Price
Adjusted from cost of
PPE
11

Elements of Cost
➢ PPE is initially recognized at cost. Historical cost comprises of :
1. The Purchased price (Cash price alone if terms are on deferred credit basis)
2. NON- Refundable taxes after deducting trade discount and rebates.
3. Cost directly attributable to bringing the asset to the present location and
condition.
Examples of Directly attributable costs are:
• Cost of Site preparation
• Costs of employee benefits (As defined in IND AS 19) arising directly from the construction
or acquisition of the Item of PPE.
• Initial Delivery and handling costs.
• Installation and assembly cost.
• Cost of testing whether the asset is functioning properly , after deducting the net proceeds
from selling any items produced while bringing the asset to that location and condition
• Professional fees.
• Cost directly attributable Estimated cost of dismantling , restoration of the site on which
it is located.
12

Elements of Cost
B. Expenses not included in cost of PPE
I. General admin overheads
II. Sales & Promotion overheads
III. Abnormal expenses
IV. Initial operating losses if asset is operated at loss than commercial level initially, its
operating losses can not be capitalized
V. Cost incurred prior to acquisition of asset & not as a consequence to purchase the asset
VI. User training Fees
13

Decommissioning , Removal and Site Restoration Cost
• As per IND AS 37, Provision, Contingent Liabilities & Contingent Assets and Liabilities that is not in
the hands of entity to be avoided is an obligation, such obligation/ liability should be provided for it
is probable (likely)
• On purchase of asset if an entity incurs an obligation for dismantling asset & restoring the site, which
is unavoidable then provision should be recognized for such obligation, termed here as “Provision for
DRS Cost”
• Provision of DSR = PV of expected DRS cost at the date when it is expected to be incurred
• DRS expense shall be added to the cost of PPE at discounted value unless such expense relates to
production of inventories.
• A provision for such expense will be recognized as per IND AS 37, which requires recognition of a
liability when there is present obligation arising out of past events on reporting date.
14

Changes in amount of DRS Provision
Unwinding of Interest Estimate Change
Due to Due to
PV Approaching nearer
Change in DRS cost or
discounting Factor
Expense i.e Debited to P/L Adjusted from cost of asset (or
revaluation surplus under
revaluation approach)
Never can it be capitalized
(Ind AS 23- Not Applicable Depreciation
prospectively changes
15

Decommissioning, Removal, Site Restoration Cost
DRS costs could be due to Cost Estimate
a) Removal of
PPE Installed
(Estimation
on installation
& added to
PPE)
B) Removal of
debris (waste)
due to production
activities
Added to cost of production of
inventory as and when co. is
liable (& not PPE)
Entity to consider the cost that is
expected to be incurred on
removal/restoration and Disc. To
its PV
D.F cost of capital or else
PV of DRS on IR to be
added to cost of PPE
Any Tech improvements, etc
reasonably expected to be achieved
by the time DRS costs are to be
incurred can be considered in making
estimate Of DRS costs
Subsequent unwinding of interest
to be charged to P/L as Interest
Expense
Never Capitalized
(IND AS 23 Cost not applicable)
16

Subsequent Expenditure
Additions
Replacements & Non-
Recurring expenses
(Frequency More than 1 Year)
➢ If it satisfies the recognition criteria,
capitalized .
➢ Capitalized to cost of asset else charged
to P/L
➢ Facts to be considered to determine
whether it will be added to
cost/recognized as separate asset.
➢ If 3 conditions of definition of PPE is
satisfied then recognize as separate asset.
➢ Derecognize the carrying amount of
existing part/ non recurring cost
➢ Capitalize the replacement part/non-
recurring expense to cost of PPE
➢ Not applicable for recurring replacements
or day to day servicing costs
17

Cost : Modes of Acquisition
Cash Price Treated as
cost of PPE subject to
discounts and
recoverable taxes,
If asset acquired for
deferred
consideration then
interest element to
be excluded from
cost of PPE
➢ Initial recognition
to be as per IND
AS 116
➢ Subsequent
accounting
including of PPE
depreciation –
IND AS 16
18

D. Exchange
➢ If the transaction has commercial
substance and fair value of asset given
or acquired is determinable then record
PPE at fair value of asset acquired is
more evident.
➢ If the transaction doesn’t have
commercial substance or fair value of
both asset given or acquired is not
determinable then recognise asset
acquired at carrying amount of asset
given up.
1) Commercial Substance
Transaction will have commercial substance if:
• Configuration of cash flows from asset
given to assets acquired are different
OR
• Entity specific fair value (i.e PV of Cash
Flows from asset that may be earned by
entity) is significantly different from the
value of asset exchanged.
2) Evident Fair Value
FV that is more precise is considered to be more
evident.
Explanations:
➢ Active market price is more evident than
arm’s length price.
➢ Value of new asset is more evident then
value of old asset.
3) If PPE acquired against consideration of
➢ Shares : As per Ind AS 102, fair value of
PPE to be recognized as cost unless it is not
available, wherein fair value of equity
instruments granted to be recognized as
cost.
➢ Receivables/monetary items: Not treated
as exchange. Receivables are 1st recognized
as its recoverable amount and this amount
will be treated as cost of PPE acquired
Whether
exchange
has
commercial
Substance?
Whether FV
of asset given
or acquired is
reliably
measurable?
Recognize PPE
acquired at CA of
asset Given
Recognize asset acquired at FV of asset given up.
(Principle: Cost principle unless FV of asset acquired is more reliably
determinable
19

E. Bearer Plants
✓ Recognized at cost, similar to self constructed assets (will be
Discussed)
Biological Assets
Livestock
Living Animals
Plants
Others Bearer Plants
IND AS 41
Plants held for bearing produce to be harvested but does not
includes
a) Plant Life <= 12 Months
b) Plants themselves held for Harvest/sale as goods
c) Plants that are held for bearing produce & for sale other
than sales as residue
20

E. Self Constructed Assets
➢ Costs attributable + cost reasonably allocate will be added to cost of PPE till asset is ready for
management intended use.
➢ Capital advance given like advance to labour contractor , not to be added to “Capital Work in
progress” but shown separately as NON-Current Assets as Advances – Capital Advance.
➢ Borrowing costs capitalised as per IND AS 23 on borrowing cost.
➢ Depreciation on own equipment used in construction will be included on pro-rata basis.
➢ No opportunity cost, Abnormal losses, income/ expense that do not relate to construction of asset are
included in cost.
➢ Till PPE is under development shown as CWIP under Non-Current Assets.
21

Directly attributable means
Includes Excludes
• Direct Material, labour, Transit
freight & insurance of material
use in construction
• Trial Run Expense
• Installation
• Professional Fees
• Depreciation on equipment's used
in construction of asset
• User Training fees
• General admin. Overheads (Audit fees
etc.)
• Expenses prior to construction
• Ancillary operation expense/revenue
• Abnormal loss
• Inauguration expense
• Selling & distribution expense
• Initial operating losses till asset reaches
commercial capacity levels
• Cost of relocation, dismantling etc. of
old asset
• Borrowing cost unless permitted by IND
AS 23 22

G. Unit of Measurement
❖ Entity to determine the unit of measurement of PPE acquired
❖ Assets of different class/ life/ use should be recognized separately .
Example: Purchase of College Premises
Entity may record all buildings of College as one building or segregate and separately record
various blocks of building as separate buildings (like Canteen block, Sports block,
Residential block)
23

24
Valuation Approach
Cost Approach
Revaluation
Approach

25
Factors of Depreciation
Cost
Depreciation to be charged on cost , unless company revalues its asset then
depreciation to be charged on revalued amount.
Useful Life
1) Estimate of Management.
2) Useful life as estimated by management & not economic life of asset.
3) Can be defined in terms of period or units.
Realizable
Value
1) Estimate of management.
2) Realizable value as estimated at end of useful life

26
Method of Depreciation
1) No restriction on choice of method.
2) Time based : Example = SLM/WDV or Usage based (Production Units, Machine Hour)
3) IND AS requires that method of charging depreciation to be such that it reflects “Pattern of
Consumption of future economic benefits from the asset”.
4) Can depreciation to be charged in proportion of Revenue?
REVENUE is not reflective of consumption of PPE as it is affected by various factors other that those
relating to consumption of asset like competition , opportunities in market, goodwill of company etc.
Hence Revenue based depreciation not to be charged unless life is defined in terms of revenue or where
revenue represents consumption of future economic benefits from asset.

27
Depreciation under Cost Approach
(Key Notes)
➢ Systematic allocation of depreciation amount:
Cost – estimated residual value over its useful life
➢ Depreciation is charged to P/L unless PPE is used in connection with production/construction/
development of asset.
➢ Method of charging depreciation should be such that “depreciation charged reflects the pattern over
which future economic benefits of assets are expected to be consumed by the enterprise.
➢ IND AS doesn’t prescribes any particular methods & permits use of any method including SLM/WDV/
usage based method.
➢ Under any method , depreciation is charged from date when asset is ready to use.
➢ However, under Usage based methods “NO” depreciation is charged, if asset is not used during the
period, hence such method should be used if appropriate.
➢ Choice of method to be based on not just the pattern of consumption of asset but also considering other
factor like technological obsolescence , regulatory factors etc.
➢ Assets to be depreciated till it is:
A. Derecognized or
B. Classified as held for Sale
C. Carrying value < Realizable value
D. Retired from use (Impairment)

28
Replacement Accounting: Replacement of part/
significant maintenance/ other cost
Replaced part was identified &
depreciated separately right on
the date of acquisition
Replaced part was depreciated
along with PPE
Derecognize
Carrying amount of old part
through P/L
Recognize
New part to be capitalized &
depreciation over its own
useful life
Derecognize
Computed/*Derived carrying
amount of the replaced part
through P/L. New part
capitalized to be depreciated
over its useful.

29
Computed/ Derived carrying Amount
Step 1 : Identify cost of replaced part on the date of acquisition by identifying cost on
DoA/ considering cost of such part on replacement subject to adjustment for inflation
Step 2 : Derive carrying amount by reducing proportionate depreciation charged

30
Component Accounting
IND AS requires component of asset of:
Material Value
Insignificant Values
Having Life
To be dubbed together
and depreciation over
its useful like or along
with asset as per
asset’s useful life
To be depreciated along
with asset over useful
life of asset
To be depreciated over
its own useful life
Component accounting is relevant for computation of depreciation and doesn’t requires
component wise presentation of PPE in FS.

31
Residual Value
➢ The Residual value and the Useful life of an asset should be reviewed at least at each financial
year end and if expectations differ from previous estimates, the Change(s) should be accounted
for as a change in an accounting estimate in accordance with IND AS 8, Accounting policies,
Changes in accounting estimates and errors.
➢ The residual value of an asset may increase to an amount equal to or greater than the assets
carrying amount. If it does, the asset’s depreciation charge is Zero unless and until its residual
value subsequently decreases to an amount below the asset’s carrying amount
➢ Depreciation is recognized even if the fair value of the asset exceeds its carrying amount.
➢ Repair and maintenance of an asset do not negate the need to depreciate it.

32
Depreciation
Fair Value >
Carrying Amount
(Residual Value is
less than carrying
amount)
Residual Value >=
Carrying Amount
Asset unused or
held for sale or
included in a
disposal group that
is classified as
held for sale
Depreciation
Charged
Depreciation
CeasesDepreciation Zero

33
Change In
Accounted a “
Change in Estimate”
Prospectively
(Without
Restatement)
COST
Useful Life
estimate
MethodRV estimate

34
Revaluation of Property, Plant & Equipment
Para 29 requires entity to make a choice between cost approach (Para 30) &
Revaluation approach (Para 31)
Choice is a matter of accounting policy
The choice should be made for a class of asset and not for assets on selective basis.
Class of assets are group of assets with similar characteristics
A
B
C
D

35
Entity following Revaluation approach :E
1. Should revalue the complete class of asset unless the fair value of any asset is not determinable.
2. Revaluation to be done at fair value i.e. price at which asset can be sold in an orderly transactions between
market participants (Selling price)
3. Revaluation gain/loss:
1st Time Subsequent
Gain Loss
OCI (NR) P or L
Revaluation
reserve in SOCIE
Gain Loss
OCI, unless
any loss
recognized
earlier on that
asset, through
P/L
OCI, unless
any loss
recognized
earlier on that
asset, through
P/L

36
4. Depreciation charged on revalued amounts & debited to P/L.
5. Excess of depreciation charged on revalued asset in comparison to depreciation on cost, can be
transferred from OCI to retained earnings by the entity.
6. On sale of Asset :
7. Asset held for sale : Accounted under IND AS 105 no further revaluation on such assets.
Selling Price >
Carrying Amount
Selling Price =
Carrying Amount
Selling Price <
Carrying Amount
Gain transferred
to P/L
Balance in Revaluation Reserve if any transferred to
Retained earnings.
Revaluation Surplus is a Non-Re classifiable OCI
Item
Loss on sale to the extent
of (net) . Revaluation
gain realized through OCI
will be adjusted through
OCI, balance recognized
in P/L

37
Frequency of revaluationF
• Entity to decide based on volatility of fair value of PPE.
• Volatile value assets- annual revaluation.
• Others- once 3-5 years.
• Entity to ensure fair value and carrying amount are not significantly different.
• Revaluation may be done anytime during the year but it should be done same time
every year

38
Accounting entry for Revaluation GainG
Option 1:
Accumulated depreciation Dr. {To the extent of accumulated depreciation}
(Provision for Depreciation)
PPE Dr. {Balance Available}
To PPE {Excess, if Any}
To OCI {Deficit if any revaluation gain}
Option 2:
Increase the proportionate cost & accumulated depreciation to bring asset to its revalued amount from
carrying amount.

39
De-Recognition
Asset is Sold Asset is Discarded
Cost Approach Revaluation
Approach
Profit/loss
transferred
to P/L
Profit Loss
➢ P/L
➢ Existing revaluation
reserve transferred to
reserves in SOCIE
Revaluation
Approach
Cost Approach
P/L
• 1st adjust from Revaluation reserve to the extent
of profits earlier transferred to revaluation
reserve (through OCI)
• Excess loss to P/L

40
De-recognition Accounting
Sale
Held for Sale Retired from Use
1. Bank Dr.
(Net of Selling cost)
Loss on sale Dr.
To Pr. On Sale
To PPE
2. Provision on Sale Dr.
To P/L
3. OCI (INR) Dr.
P/L Dr.
To Loss on Sale
Ind AS 105
Applies
Value at lower of
CA FV – Cost
of Sale
Disclose separately in BS
Loss, If any (When net FV<CA) to be
transferred to P/L subject to OCI to
extent of revaluation reserve available
carried at CA subject to
impairment loss (as per
IND AS 36)

41
Schedule II to Companies Act
1. Applies to all companies except companies for which useful life/Realizable value/ rate
of Depreciation is prescribed elsewhere in other law
2. Prescribes:
a) Useful life of assets : Any company, using any life other than it needs to should :
1) Obtain professional certificate.
2) Disclose fact in financial statement.
b) Residual Value: Permits residual value up to 5% of cost. If company estimates
greater realizable value the (i) & (ii) above applies.
3. Depreciation is charged from the date when asset is ready to use.
4. Depreciation is charged on cost/revalued amounts.
5. Methods :
SLM/WDV/any other appropriate method.

42
Schedule II to Companies Act
6. Change in useful life/ Residual Value : Accounted for Prospectively
7. If used asset is purchased then the useful life of asset given under schedule II to be reduced by
life of asset that is already consumed .
8. First time adoption of Schedule II
Schedule II was made effective on 01/04/2014 and was applied retrospectively with adjustment
made from carrying amount of PPE and opening reserves (Subject to DTA/DTL)
9. Time proportion depreciation to be charged
10. Component accounting mandated by Schedule II.

43
Extra Shift Depreciation
Separate useful
life/depreciation rates
Others
Others (Extra Shift
Depreciation)
No Extra Shift
Depreciation
Even if assets used
extra shift, no
additional
depreciation is
charged
Extra Depreciation for
number of days running
extra shift to be charged
a) Double Shift : +50%
b) Triple Shift: +100%
*Continuous process plant is designed due to the nature of process to run continuously i.e in
all 3 Shifts. Because it involves substantial time & cost to shut down & then start up

First Time Adoption (FTA) IND AS 101
A. Basic Principles of FTA
AS 1.4.16
Date of
Transition
1.4.17
IND AS applicability
(Net Worth > 250 Crore)
31.3.18
First IND AS based FS
44

Steps to be Followed
Determine the Date of Transition
Restate DoT BS from previous GAAP FS to FS as per IND AS ensuring
1.
2.
a) Recognize all assets
and liabilities whose
recognition is
required by Ind As
d) Apply Ind AS in
measuring all
recognised assets and
liabilities
b) Not recognize items
as assets or liabilities if
Ind AS do not permit
such recognition
C) Reclassify items that it recognised in accordance with
previously GAAP as one type of asset, liability or component of
equity , but are a different type of asset, liability or component of
equity in accordance with Ind As
45

Steps to be Followed
Difference to be adjusted from opening reserves(on DoT, subject
to any deferred tax adjustment
Present first IND AS FS along with additional disclosures of IND
AS 101 with an “Explicit Unreserved Statement” that “FS” are
prepared as per IND AS
3.
4.
46

Exemption given in 101
IND AS 101
Relating to service
concession
arrangement
(Intangible Asset
IND AS 38 and
revenue related
IND AS 115
Foreign currency
monetary items
(Long terms)
IND AS 21
Appendix to IND AS 101
Appendix B Appendix DAppendix C
Cons., Business
Combination, FI
related mandatory &
optional Exemptions
In IND AS 101
Other IND AS
optional exemptions
to be discussed with
respective IND AS
Exemption from retrospective application of IND AS on the Date of Transition
(Once in lifetime exemption available on year of transition to IND AS and not later
47

Note Relating to Transition
Financial Statement
Level
Item Level Item Level
Transition to IND AS as
from previous GAAP
Transition due to change in
accounting policy as
permitted in and IND AS
required by LAW
Transition from old IND AS
to new IND AS
Like IND 11, 18,115
Governed by IND AS
101
Governed by specific
provision of change in
policy given in
respective IND AS or
as per IND AS 8
Governed by transition
provision given in new
IND AS
48

Deemed Cost Exemption
Prospective
Accounting
Options given to
consider either of the
following as “Deemed
Cost” on Transition
date of PPE
Whether
Entity opts for
deemed cost
exemption?
Retrospective Accounting
required
However, estimates of useful life,
residual value etc. relating to PPE
acquired before the transition date
will be made Considering the
information available Upto the
transition date as further
evidencing events relating to
events existing on balance sheet
date
YES NO
49

Option 1 Option 2
Para D5 to 7 Revalue PPE on
Transition date at fair value and
consider, such FV as deemed
cost, (FV as per IND AS unless
the PPE is revalued under
previous GAAPs &
a) FV on transition date is not
significantly different from
carrying amount of PPE
b) Revaluation was done under
restructuring/ public issues ,
or
c) Revaluation done
previously is adjusted from
price changes
Para D7AA
Consider the Carrying
amount of PPE as per
previous GAAPs, as
deemed cost on
transition date subject to
adjustment for
(Cost of DRS)
PPE of Subsidiaries:
• If subsidiaries were consolidated
consider carrying amount used in
consolidated financial statements.
• If subsidiaries not consolidated
consider carrying amount of PPE
of subsidiary as appearing in SFS
of subsidiary
Cost of DRS to be added to
carrying amount of PPE:
1) Determine present value
of DRS on date of
acquisition of PPE. (Not
DoT)
2) Depreciate DRS for
number of years for which
PPE has been in use as per
life of PPE. Such
depreciated DRS will be
added to cost of PPE
50

• Company whether opting option 1 or 2 is free to choose its accounting
approach for future accounting under IND AS as costs approach/ revaluation
approach.
• Optional exemption is for “Measurement only, there is no “Recognition
Exemption” for PPE. i.e PPE appearing under old GAAP, if does not qualifies
to be PPE then it has to be written off and vice-versa.
• Option selection is available for entity as a whole & not class wise.
• Option for PPE, Intangible Assets and investment property , Para D5 to 7 not
available to IP.
• Post DoT entity to measure PPE in its IND AS Financial Statements as per its
measurement policy of cost or revaluation irrespective of option on DoT.
• Option not available if any item was not recognized as PPE under previous
GAAPs
51

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Ind AS 16

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