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IAS 16 Property, Plant, and Equipment

International Accounting Standard 16: Property, Plant, and Equipment guide accounting treatment of a specific class of tangible non-current assets. As they are of significant value, therefore, recognition, measurement, and subsequent valuation of these assets are important not only in presenting financial statements but also for investment decisions as it forms the backbone of entity’s financial strength.


According to IAS 16, items of property, plant, and equipment are to be recognized at cost initially i.e. the cost incurred to buy an asset or to construct an asset including all such costs that are incurred to bring the asset into its intended use. Once the asset is ready for its intended purpose and can be put to use, the devaluation of the asset is recorded following a systematic approach which should be in line with the benefits rendered by such assets and standard allows the use of the different approach. As the useful life of the majority of these assets is long thus may require revaluation in asset’s value, useful life, and/or depreciation rate due to changing circumstances. It also guides accounting for expenditures incurred after initial recognition and how to account for such expenditures. Separate component assets or complex assets are now part of the real-world business environment and required a clear approach to depreciating such assets and are dealt with in IAS 16. Lastly, the disposal of an asset and how to account for the sale of items of property, plant, and equipment and disclosure requirements for a better understanding of users of financial statements.



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