Treatment Of Tangible Assets Under IFRS
Treatment of Property, Plant And Equipment (PPE) under IFRS
First time adoption of IFRS for PPE
An entity can use fair value as deemed cost on First time adoption of IFRS
OR
It has to apply Retrospective application which means recalculate carrying amount of each PPE item according to IFRS since its purchase date including transaction cost, useful life and residual value.
Suggestion
However fair value as deemed cost is more appropriate since there would be practical difficulties for companies to do retrospective application from the date when the asset has been purchased.
Fair value for PPE
Fair value for Land and Buildings is usually determined from market based evidence by appraisal normally undertaken by professionally qualified valuation officers and for other items of PPE their market value is determined by appraisal.
If there is no market-based evidence of fair value because of special nature of asset then it has to be determined on basis of either Income Approach or Depreciated replacement cost approach.
Methods for Subsequent Measurement of PPE
There are 2 methods available for Subsequent measurement of PPE i.e. Revaluation Model and Cost Model.
However most of the LSE listed companies have adopted Cost Model. Generally companies who are in business of Investment property prefer revaluation model.
Suggestion
Cost model is preferable over revaluation model mainly because of the following reasons:
• Once revaluation model is adopted one has to do frequent revaluation as prescribed by IAS 16 which requires expertise of professional valuer which may not be cost effective for companies.
• Also if the property prices changes drastically one has to book the difference in Income Statement resulting in huge volatility which may not be accepted to management of company.
Reclassification
Movement from Cost Model to revaluation model is permitted however vice versa is not permitted which means if Revaluation model once followed cannot move to Cost Model.
Suggestion
Companies should carefully examine the impact before making policy and procedures in respect of the same.
Author: CA Shalini Tibe, IFRS Consultant
Related posts:
| Print article |
No comments yet.
No trackbacks yet.
Base rate Vs BPLR
about 8 months ago - 14 comments
Shift from BPLR to Base Rate Recently with release of RBI circular on Base rate implementation, there has been a lot of debate going on regarding BPLR (benchmark prime lending rate). Here is our beginner’s guide to understand the two rates. What is BPLR? BPLR is the reference rate for banks for pricing their loan
BUY What has NOT Fallen
about 1 year ago - No comments
After hitting its year highs in November, the markets have corrected by almost 8% with the Mid-Cap index falling over by 10% and above. The key reasons behind this fall could be: Concerns regarding sovereign default in Europe Rising inflation and a tightening monetary condition in China Corruption charges on government agencies which brings down
Advance Technical Analysis Seminar in Mumbai by Manish Hathiramani
about 1 year ago - No comments
For the First Time – Kredent Academy brings to you the tools used by professionals for Technical Analysis. If you’ve ever wondered how successful traders are able to profit consistently – in various market conditions – you need to attend this Workshop. In this vital workshop you will learn the strategies and techniques that today’s
Purchasing Power Parities (PPP) explained
about 1 year ago - No comments
In our endeavour to enrich the knowledge of our readers we regularly come up with articles giving simple explanantion of economic and financial terms. Next in this series is the Purchasing Power Parity (PPP). Please write to us if you have further queries or you would like us to post explanation of any such term. What
IFRS for exploration of mineral resources and Oil & Gas industry
about 1 year ago - 1 comment
What does it mean by Exploration for and evaluation of mineral resources, Oil and Gas? It is basically search for mineral resources, including minerals, oil, natural gas and similar non-regenerative resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial
Phase 2 of IFRS 9: Exposure Draft on Amortised cost and Impairment
about 1 year ago - 1 comment
Further to our earlier explanation of IFRS 9 (click here to read), our analyst Shalini Tibe comments on the exposure draft of IFRS 9. We hope the information is useful to you. Exposure Draft (ED) proposes to replace Incurred Loss Model for the assessment of impairment of financial assets measured at amortized cost currently included
Depriciation and Impairment – IFRS and Indian GAAP
about 1 year ago - 6 comments
Link between Depreciation and Impairment under IFRS When an item of Property, Plant and Equipment (PPE) is impaired i.e. recoverable amount < carrying amount, carrying amount is reduced to the amount of recoverable amount. Asset should no more be carried more than their Recoverable amount. Such a decrease in carrying amount is impairment and is
Annual Monetary policy 2010 – Highlights
about 1 year ago - 1 comment
RBI Governor Dr D Subbarao announced the annual monetary policy on Tuesday. RBI seems to have taken a more dovish stance than expected. Many analysts and market participants had expected a 50 bps hike in the policy rates. As expected, RBI took cognizance of the fact that inflation seems to be moderating and has opted
IFRS: an improvement in accounting quality as well as corporate governance
about 1 year ago - No comments
With India going global, corporate management is now feeling the pressure for reforming accounting practices and level of transparency arising from lenders, regulatory agencies, financial analyst and above all board of directors who realize that it is the quality of information which will determine how efficiently they have discharged their responsibilities towards the good Corporate
MARKET RISK DISCLOSURES UNDER IFRS 7
about 1 year ago - 2 comments
An entity possesses the risk if the fair value or cash flow of financial instrument will fluctuate as a result of change in market prices. Following disclosures need to be shown in financial statement: A sensitivity analysis of each type of market risk to which the entity is exposed showing how profit or loss and

