Propertyplant and equipment

DEFINITION:-
A  company asset that is vital to business operations but cannot be easily liquidated. The value of property, plant and equipment is typically depreciated over the estimated life of the asset, because even the longest-term assets become obsolete or useless after a period of time.
The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges are to be recognized.

·        Property, plant and equipment are tangible

·        Cost of an item of property, plant and equipment shall be recognized as an asset;

·        Cost of property, plant and equipment includes;

(a)   Its purchase price,

(b) Including import duties

(c) Non-refundable purchases taxes, after deducting trade Discounts and rebates.

(d) Cost incurred to bring it to the point of allocation...

 OBJECTIVES :-

           The objective of this Standard is to prescribe 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 changes in such investment.
The objective of this Standard is to prescribe 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 changes in such investment.

Property, plant and equipment are tangible items that:

(a)  These items are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes;

(b)  Expected to be used during more than one period.

The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if: 

(a)  It is probable that future economic benefits associated with the item will flow to the entity; and

(b)  The cost of the item can be measured reliably..

 
SCOPE :-

Certain assets have unlimited useful life such as land and they are not depreciated. Other assets such as buildings, vehicles, etc. lose their value over their useful life and are called depreciable fixed assets.

Since fixed assets are used for a period of more than one year, we must have a mechanism to expense out the cost of the fixed assets on some systematic basis. This process of allocation of fixed asset cost over period is called depreciation.

Each fixed asset has some useful life, for example say 2 year in case of a computer. Most assets are scraped but some may have certain value at the end of their life, for example we may expect to get considerable proceeds from selling a vehicle at the end of its useful life, this value at the end of the useful life is of an asset is called its residual value, salvage value or scrap value. We only depreciate that portion of cost which exceeds the salvage value. In other words the depreciable amount is cost minus salvage value...

Recognition:

The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:

1.                     it is probable that future economic benefits associated with the item will flow to the entity;  and 

2.                     the cost of the item can be measured reliably.