Objective
The objective of this Standard is to advise the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entity’s investment in its property, plant and equipment and the modifications in such investment. The main subjects in accounting for property, plant and equipment are the realization of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be realized in relation to them.
consultas IFRS. (2014). IAS 16 PPE. Available: https://www.consultasifrs.com/adjuntos/en_biblioteca_129.pdf. Last accessed 4th nov 2016.
Recognition
This recognition principle applies to all property, plant, and equipment costs at the time they are incurred. These prices include costs incurred initially to acquire or make an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it.
IAS 16 recognizes that parts of some items of property, plant, and equipment may need replacement at regular intervals. The carrying amount of an item of property, plant, and equipment will include the cost of replacing the part of such an item when that cost is incurred if the recognition criteria (future benefits and measurement reliability) are met. The carrying amount of those parts that are replaced is derecognized in accordance with the recognition provisions of IAS 16.67-72.
Initial measurement
An item of property, plant and equipment should initially be recorded at cost. Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price, but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site [IAS 16.16-17]
Cost model. The asset is carried at cost less accumulated depreciation and deterioration. [IAS 16.30]
Revaluation model. The asset is conveyed at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that reasonable value can be measured reliably. [IAS 16.31]
King Saud University. (1998). Property, Plant and Equipment.Available: faculty.ksu.edu.sa/72465/Arabic/DocLib8/IAS16final.doc. Last accessed 4th nov 2016.
If a revaluation results in an increase in value, it should be credited to other comprehensive income and accumulated in equity under the heading "revaluation surplus" unless it represents the reversal of a revaluation decrease of the same asset previously recognized as an expense, in which event it should be recognized in profit or loss. [IAS 16.39]
Depreciation
The depreciable amount (cost less residual value) should be apportioned on a systematic basis over the asset's useful life [IAS 16.50].
The depreciation method used should reflect the pattern in which the asset's economic benefits are depleted by the entity [IAS 16.60]; a depreciation method that is based on revenue that is sired by an activity that includes the use of an asset is not appropriate.
a) To Calculate the True Profits:
Depreciation is an expense and becomes an important element of the cost of production. Though it is not visible like other expenses and never paid for the outside party, yet it is desirable to charge depreciation on fixed assets as these are used for clearing purposes; so their depreciation must be derived out of the income realized from their employment in parliamentary procedure to calculate true profit net or loss.
b) To show true Financial Position:
Financial position can be studied from the balance sheet and for the preparation of balance sheet fixed assets are required to be shown at their true value. If assets are shown in the balance sheet without any charge made for their use or depreciation, then their value must have been overstated in the balance sheet and will not reflect the true financial position of his business
c) To make Provision for replacement of assets:
If depreciation is not provided, the profits of the concern will be overstated and can be distributed to the shareholders as dividends. After the end of the working life of the asset, there will be no provision or funds at the disposal of the concern and hos to borrow for purchasing new assets.
Internal Reasons:
i) Wear and Tear purpose
ii) Not using
iii) Lack of proper maintenance
iv) Change in production formalities
v) Restriction of production by government
vi) Reduction to demand of the product created by the asset
vii) Technical progress
viii) Depletion
Research:
King Saud University. (1998). Property, Plant and Equipment.Available: faculty.ksu.edu.sa/72465/Arabic/DocLib8/IAS16final.doc. Last accessed 4th nov 2016.
Characteristic of depreciation:
The distribution of the value of the item of property, plant and equipment expendable on the useful life of him on a regular basis. And it must reflect the way the consumption figure in which deplete the established economic benefits of the asset. It should be recognized private consumption each period as an expense, unless included in the carrying value of an asset last.
The established economic benefits in the asset, the carrying amount of the asset be reduced to reflect this depletion by calculating depreciation as an disbursement. In that location must be calculating depreciation expense.
A. The expected usage of the asset by the entity.
B. Normal (corrosion), which depends on operational factors such as the number of shifts in which the origin and maintenance of the reform program and I have used the facility and care and maintenance of the asset when it is light.
A review of the useful life:
You should break over the useful lifespan of the item of property, plant and equipment periodically, and if the forecasts show a major difference from previous estimates should be adjusted decrease charge for the current and future periods.
Revision consumption ways:
Must review the depreciation method applied to property, plant and equipment on a regular basis, and if there is a major change in the expected pattern of economic benefits from those assets must change the way reflect the alteration in the pattern. When this depreciation method is necessary the change should be accounted for as a change in the estimate should be rewritten depreciation charge for the current and future periods.
Stop and disposal:
You must delete the item of property, plant and equipment of the budget at the disposal of an asset or when withdrawn from service forever is not expected to achieve future economic benefits of removing it.
Example for depreciation:
SLM RBM
Dep Y1 8000
Depreciation Y1 -2000
Close Y1 6000
Open Y2 6000
Depreciation Y2 -1500
Close Y2 4500
Open Y3 4500
Depreciation Y3 -1125
Close Y3 3375
Open Y4 3375
Depreciation Y4 -844
Close Y4 2531
Under (RBM) the income tax department approved % is used in the first year to the original cost and in subsequent years to the written down value of the asset.
So, accordingly, the net book value decreased from OMR. 6000 at the end of Y1 to OMR 1500 at end Y2, OMR, 1125 at end of Y3, OMR 884 close of Y4.
The amount charged as department wearer different in each and the amount of depreciation decreased with each passing year. Each year depreciation has to recalculate.
Comparison between effects of Street line method (SLM) Vs Reducing balance method (RBM)
In SLM the amount of department remained the same every year. So the profit decreased every year by OMR. 2000 RBM profit decreased by different decreasing amount. Since a lower amount is charged as department under RBM reported profit is higher in RBM as against SLM.
Under SLM, the WDV in FP statement will decrease every year by OMR. 2000. But under RBM the WDV decreasing by a lesser value consequently the assets will be reported at a higher value under RBM.
Under both methods, Y1 is the same, but while the assets will not be reported from Y4, onwards in SLM the asset will continue to be reported from many more years under RBM.
1. Al Anwar Ceramic
2. Oman Fisheries Co
3. Sohar Power
4. OmanTel
Task 1
Company Name Method Rationale
Al Anwar Ceramic Tiles. SAOG Straight-Line With IAS16 allows only two methods to use SL / RB, also these two methods have allowed by Oman Taxation and MSM
OMAN FISHERIES CO. SAOG Straight-Line
Sohar Power CO. SAOG Straight-Line
Oman Tel Co. SAOG Straight-Line
Task2
Al Anwar Ceramic Tiles Co. SAOG
Assets Class Dep % Estimated Useful Life
Building and cabins 5 20
Plant and Equipment's 6.67 15
Engineering Tools 25 4
Material Eq 15 7
Office Eq 25 4
Motor 25 4
Furniture 20 5
OmanTel Co. SAOG
Assets Class Dep % Estimated Useful Life
Average
Building and cabins 19 3 to 20
Cable and Transmission Equipment 18 3 to 30
Tel exchanges, Power Equipment 28 2 to 20
Tel, Telex and Equipment 60 1 to 5
Satellite Equipments 14 5 to 14
Furniture 27 3 to 5
Motor 27 3 to 5
Sohar Power Co. SAOG
Assets Class Dep % Estimated Useful Life
Average
Building and cabins 3 30
Plant and Equipment's 3 30
Technical Parts 3 30
Other Assets 25 4
Decommissioning Asses 3 30
Oman Fisheries Co. SAOG
Assets Class Dep % Estimated Useful Life
Average
Building and cabins 7 10 to 25
Plant and Equipment's 22 3 to 10
Boats and Trawlers 13 5 to 15
Motor 27 3 to 5
Furniture 22 3 to 10
Task3
Company Name NCA Model Details
Al Anwar Ceramic Tiles. SAOG Cost Model & Re Value Model Cost Model uses in Machinery and Tools, Furniture, Motor, boards, Trolly. And Revalue Model Using only in Land and Buildings
OMAN FISHERIES CO. SAOG Cost Model & Re Value Model
Sohar Power CO. SAOG Cost Model & Re Value Model
Oman Tel Co. SAOG Cost Model & Re Value Model
Task4
Al Anwar Ceramic Tiles Co. SAOG
Details Amount
Open Book Amount 2014 35,167,442.000
Additions 1,106,938.000
Disposal (48,700.000)
Accumulated Depreciation 15,950,241.000
Net Book Amount 2015 2,028,224.000
Oman Fisheries Co. SAOG
Details Amount
Open Book Amount 2014 10,087,035.000
Additions 1,489,337.000
Disposal (395,702.000)
Accumulated Depreciation 5,485,454.000
Net Book Amount 2015 11,179,654.000
Sohar Power Co. SAOG
Details Amount
Open Book Amount 2014 524,749.000
Additions 648.000
Disposal –
Accumulated Depreciation 134,196.000
Net Book Amount 2015 390,553.000
OmanTel Co. SAOG
Details Amount
Open Book Amount 2014 1,081,093.000
Additions 134,667.000
Disposal (20,479.000)
Accumulated Depreciation 735,478.000
Net Book Amount 2015 457,023.000
Task5
A.A.Ceramic T.Co. OmanTel Co. SAOG Sohar Power Co. SAOG Oman Fisheries Co.
Building and cabins Building and cabins Building and cabins Building and cabins
Plant and Equipment's Cable and Transmission Plant and Equipment's Plant and Equipment's
Engineering Tools Tel exchanges, Power Technical Parts Boats and Trawlers
Material Eq Tel, Telex and Equipment Other Assets Motor
Office Eq Satellite Equipments Decommissioning Asses Furniture
Motor Furniture
Furniture Motor
Capital Amount
OMR 35,167,442.000 OMR 1,081,093.000 OMR 524,749.000 OMR 10,087,035.000
Societies that function in a service like OmanTel and Sohar Power Company doesn't have a great deal of equipment, so that their work is mostly hooked on human capacity services. If this equipment in this kind of companies. To increase the expenditure of up to 30 years, compared with companies that rely on the role of production equipment.
And we can follow the table above shows us the company's capital, compared with companies working in Industrial Societies that operate in industry like Al Anwar Ceramic and Oman Fisheries Co. Using heavy equipment and therefore consumption, many find that this character of companies includes many equipment lists The end of each financial year and a period of consumption does not surpass 20 years.
Reference List:
‘ http://www.hkicpa.org.hk/file/media/section6_standards/standards/ssap17.pdf
‘ https://www.casrilanka.com/casl/images/stories/content/publications/publications/accounting_standards/as_per_2006_sri_lanka_accounting_standards_bound_volume/slas18_20property_20plant.pdf
‘ https://www.aer.gov.au/system/files/PN%201%20Property%20plant%20and%20equipment.pdf
‘ http://www.anglophil.com/notes/notes02.htm
‘ https://www.scribd.com/doc/34576125/ZICA-T1-Financial-Accounting
‘ http://www.anglophil.com/notes/notes02.htm