Ias 16

INTERNATIONAL ACCOUNTING STANDARD ( I A S ) – 16

Property, Plant and Equipment

The objective of this standard is to prescribe the accounting treatment for Property, Plant and equipment so that users of the financial statements can make out information about an entity’s investment in its property, Plant and equipment and the changes in such investment.

The standard gives a large number of definitions:

BACKGROUND

The accounting treatment for fixed tangible assets is based on the accruals or the matching concepts, under which expenditure is capitalised until it is charged as depreciation against revenue in the period in which benefit is gained from its use. Thus, if an asset is purchased that has an economic life for two years, so that it will be used over two accounting periods to help earn profit for the company and the cost should be apportioned in a way between the two accounting periods.

WHAT IS A FIXED ASSET?

There are two types of fixed assets; tangible and intangible. The Companies Act, 1985 defines tangible fixed assets as those, which are intended for use on a continuing basis in the company’s activities, and any assets, which are not intended for such use taken to be current assets. IAS 16, ‘Accounting for Property, Plant and Equipment’ definition is “assets that have a physical substance and are held for use in the production or supply of goods or services, for rental to others or for administrative purposes on a continuing basis in the reporting entity’s activity, have been acquired or constructed with the intention of being used on a continuing basis; and are not intended for sale in the ordinary course of business.

Whereas the Intangible fixed assets are non financial fixed assets that do not have physical substance but are identifiable and are controlled by the entity through custody or legal rights (FRS 10, para.2). For example, newspaper titles and publishing rights,...