CA Final · Financial Reporting

Ind AS 16 Property, Plant and Equipment: formula sheet

Full chapter guide

Key formulas

Definition of PPE: Tangible item + held for production/supply, rental to others or administration + expected use for more than one period; All three parts must be present. Missing any one means it is not PPE.
Recognition criteria: Recognise if (a) future economic benefits are probable AND (b) cost can be measured reliably; Both conditions must be satisfied. Applies to initial and subsequent costs.
Spare parts rule: Meets PPE definition → PPE; otherwise → inventory; Test is use over more than one period, not the size or the label of the item.
Day-to-day servicing: Recognise in profit or loss as incurred; Do not capitalise repairs and maintenance that only maintain the expected performance.
Replacement or major inspection: Capitalise cost if criteria met; derecognise carrying amount of replaced part or previous inspection; If the replaced part's cost is unknown, the replacement cost may be used as an indication of its cost when it was acquired or constructed.
Cost of PPE: Cost = Purchase price (net of trade discounts and rebates, plus import duties and non-refundable taxes) + Directly attributable costs + Initial estimate of dismantling and restoration costs; Exclude taxes that are recoverable, such as eligible GST input credit. Include only non-recoverable taxes.
Deferred payment: Cost = Cash price equivalent at the recognition date (present value of payments if no cash price is given); The excess over cash price is interest expense over the credit period, unless capitalised under Ind AS 23.
Exchange with commercial substance: Cost = Fair value of asset given up (or of asset received, if more clearly evident) ± cash paid or received; Gain or loss on the asset given up goes to profit or loss.
Exchange without commercial substance: Cost = Carrying amount of asset given up ± cash paid or received; Also applies if fair value of neither asset can be measured reliably. No gain or loss is recognised.
Commercial substance test: Exchange has commercial substance if (a) the configuration (risk, timing, amount) of cash flows differs, or (b) the entity-specific value of the affected operations changes, and the difference is significant relative to fair value of assets exchanged; Both tests apply to the cash flows of the asset received versus the asset given up.
Cost of self-constructed asset: Cost = Same principles as for a purchased asset; abnormal waste (material, labour, other resources) is excluded; Internal profits are never included.
Grant treatment: Carrying amount = Cost − Grant (deduction method), or Cost recorded gross with grant as deferred income; Ind AS 20 permits either presentation for asset-related grants.
Initial cost of PPE: Cost = Purchase price + directly attributable costs + PV of initial estimate of dismantling and restoration obligation; Applies when the obligation arises on acquisition or from using the asset other than to make inventory. Provision is measured under Ind AS 37.
Present value of obligation: PV = Estimated future outflow ÷ (1 + r)ⁿ; r is a pre-tax rate reflecting current market assessments of time value and risks specific to the liability. n is the years to settlement.
Unwinding of discount: Finance cost for the year = Opening provision × discount rate; Charged to profit or loss. Not capitalised under Ind AS 23. It increases the provision.
Change in liability: cost model: Increase in liability → add to asset cost. Decrease → deduct from asset cost, limited to carrying amount. Excess decrease → profit or loss.; If an addition is made, consider whether the asset may be impaired and test under Ind AS 36. The revised depreciable amount is depreciated over the remaining useful life.
Change in liability: revaluation model: Decrease → credit revaluation surplus (OCI), except reversal of earlier deficit goes to profit or loss. Increase → profit or loss, except debit revaluation surplus up to its credit balance for that asset.; Change in the liability alters the revaluation surplus or deficit. It may also signal that the asset must be revalued to check carrying amount against fair value.
Asset at end of useful life: Cost model, once the asset has reached the end of its useful life: all later changes in liability go to profit or loss as they occur; While the asset is still in use, an increase is added to cost with an impairment check. Once the carrying amount is nil, any further decrease goes wholly to profit or loss, because it is an excess over the carrying amount. Only after the end of the useful life do all changes, increases too, go to profit or loss.
Cost model carrying amount: Carrying amount = Cost − Accumulated depreciation − Accumulated impairment losses; Fair value changes are ignored.
Revaluation model carrying amount: Carrying amount = Fair value at revaluation date − Later accumulated depreciation − Later accumulated impairment losses; Used only if fair value can be measured reliably.
Revaluation increase or decrease: Revaluation gain or loss = Fair value − Carrying amount just before revaluation; Positive means increase, negative means decrease. Compute asset by asset.
Increase rule: Increase → OCI (revaluation surplus); but credit P&L to the extent it reverses an earlier P&L decrease on the same asset; Do not set off against decreases on other assets.
Decrease rule: Decrease → first debit revaluation surplus of that asset (OCI); excess → P&L; Surplus of other assets cannot be used.
Accumulated depreciation treatment (restatement): Either (a) restate gross carrying amount and accumulated depreciation proportionately, or (b) eliminate accumulated depreciation against gross carrying amount; Net carrying amount must equal revalued amount in both methods.
Annual transfer from surplus: Transfer = Depreciation on revalued carrying amount − Depreciation on original cost; Optional. Moves from revaluation surplus to retained earnings, not through P&L.
Depreciable amount: Depreciable amount = Cost (or revalued amount) − Residual value; Residual value is estimated net of expected disposal costs. If residual value equals or exceeds carrying amount, the depreciation charge is zero until it falls below carrying amount.
Straight-line depreciation: Annual depreciation = (Cost − Residual value) ÷ Useful life; Charge is time-apportioned for part years, from the date the asset is available for use.
Diminishing balance: Depreciation for the year = Opening carrying amount × Rate; Residual value is built into the rate, not deducted from cost. Depreciation under this method must not take the carrying amount below the residual value.
Units of production: Depreciation = (Cost − Residual value) × Units produced in the year ÷ Total expected units; Use when benefits are consumed in line with output.
Component approach: Total depreciation = Σ depreciation of each significant component + depreciation of the remainder; Each component has its own cost, life, residual value and method.
Change in estimate: Revised annual depreciation = (Carrying amount at date of change − Revised residual value) ÷ Remaining useful life; Prospective only. No adjustment to prior years' depreciation.
Replacement of a component: Capitalise cost of new part; derecognise carrying amount of old part; Loss on derecognition goes to profit or loss. If the old carrying amount is unknown, the cost of the new part may be used as an indication of the old part's cost when it was acquired or constructed.
Gain or loss on derecognition: Gain / (Loss) = Net disposal proceeds − Carrying amount; Carrying amount is after depreciation up to the date of disposal and after accumulated impairment. Recognise in profit or loss, not as revenue.
Carrying amount (cost model): Carrying amount = Cost − Accumulated depreciation − Accumulated impairment loss; Under the revaluation model, start from the revalued amount instead of cost.
Replaced part: New carrying amount of item = Old carrying amount + Cost of new part − Carrying amount of replaced part; Capitalise only if recognition criteria are met. Derecognise the old part even if it was not depreciated separately.
Derecognition triggers: Derecognise on (a) disposal or (b) no future economic benefits from use or disposal; Temporary idling or retirement from active use alone does not trigger derecognition.
Third-party compensation: Recognise compensation in profit or loss when it becomes receivable; Do not net it against the impairment loss or the cost of any replacement asset.
Revaluation surplus on disposal: Revaluation surplus may be transferred directly to retained earnings on derecognition; The transfer is permitted, not mandatory. If made, it goes directly to retained earnings and not through profit or loss.
Recognition test for stripping activity asset: Asset only if: (a) future benefit probable + (b) component of ore body identifiable + (c) cost measurable reliably; All three must be met. If any one fails, the cost goes to inventory under Ind AS 2.
Cost per unit of waste: Cost per tonne of waste = Total production stripping cost ÷ Actual waste removed; Use when cost is spread evenly over the waste removed in the period.
Waste attributable to inventory (ratio application): Inventory waste = Ore extracted in period × Expected waste-to-ore ratio of the component; Appendix B bases the allocation on the ratio of actual waste extracted to the expected waste for the actual ore produced, for the identified component. This formula applies that comparison: expected waste for the ore actually extracted is ore × expected ratio. The standard does not prescribe the formula. The expected ratio is for the identified component, not the whole mine.
Waste attributable to asset: Asset waste = Actual waste removed − Inventory waste (only if positive); If actual waste is at or below the expected waste for the ore produced, nothing is capitalised. Any excess is capitalised only if the three recognition criteria are met for the identified component. Otherwise it goes to inventory.
Stripping activity asset cost: Asset cost = Asset waste × Cost per tonne of waste (plus directly attributable costs and overheads, excluding incidental operations); Costs of incidental operations are excluded.
Depreciation of the asset: Depreciation = Carrying amount × Ore extracted in period ÷ Expected ore in the identified component; Units-of-production is normally used. Depreciate over the life of the component, not the whole mine, unless the component is the whole mine.
Closing carrying amount (reconciliation): Closing carrying amount = Opening carrying amount + Additions + Business combination acquisitions ± Revaluation changes ± Net exchange differences ± Other changes − Disposals and assets held for sale − Depreciation − Impairment losses + Impairment reversals; Show each line separately, for each class. Impairment and reversals recognised in profit or loss and in OCI are shown separately.
Carrying amount: Carrying amount = Gross carrying amount − Accumulated depreciation and accumulated impairment losses; Ind AS 16 asks for gross carrying amount and accumulated depreciation (aggregated with impairment losses) at the start and end of the period.
Disclosures per class (para 73): Measurement bases | Depreciation methods | Useful lives or rates | Gross amount and accumulated depreciation | Reconciliation; Remember as five items. Write each one for every class.
Other mandatory disclosures (para 74): Restrictions on title and pledges | Expenditure on assets under construction | Contractual commitments | Third-party compensation in profit or loss; Compensation is disclosed only if not shown separately on the face of the statement of profit and loss.
Revaluation disclosures (para 77): Effective date | Independent valuer or not | Methods and significant assumptions | Carrying amount under cost model | Revaluation surplus movement and distribution restrictions; Required only for classes carried under the revaluation model.
Encouraged disclosures (para 79): Temporarily idle assets | Fully depreciated assets still in use | Assets retired from active use and not held for sale | Fair value if cost model and materially different; These are encouraged, not mandatory. Examiners test this difference.

Quick revision

Recognise PPE only if future economic benefits are probable and cost can be measured reliably.
Cost includes purchase price net of trade discounts, non-refundable duties and taxes, directly attributable costs and the initial estimate of dismantling and restoration.
Costs of opening a new facility, training, advertising and general overheads are not capitalised.
Capitalisation stops when the asset is in the location and condition to operate as management intends.
Costs of testing whether the asset is functioning properly remain part of its cost. Sale proceeds of items produced while testing an asset are recognised in profit or loss along with the cost of producing those items, not deducted from asset cost. This reflects the Ind AS 16 amendment on proceeds before intended use (effective 1 April 2022), which removed the deduction of such proceeds from cost.
Under the revaluation model, revalue the whole class of assets and keep revaluations current.
A revaluation surplus goes to other comprehensive income and revaluation surplus in equity, unless it reverses an earlier loss recognised in profit or loss.
A revaluation deficit goes to profit or loss, unless it reduces an earlier surplus for the same asset.
Depreciate each significant component separately over its own useful life; review useful life and residual value at least at each year end.
Land is normally not depreciated. Depreciation continues when an asset is idle. It ceases at the earlier of the date the asset is classified as held for sale (Ind AS 105) and the date it is derecognised. Total depreciation does not exceed the depreciable amount. A fully depreciated asset still in use stays in the books at its residual value (which may be nil), and its cost and accumulated depreciation are retained until derecognition. Under the units-of-production method the charge can be nil when there is no production.
Gain or loss on derecognition is net proceeds less carrying amount, recognised in profit or loss.
Compensation from third parties for impaired or lost items is recognised in profit or loss when it becomes receivable.

Common mistakes

Treating all spare parts as inventory, or all as PPE. Fix: Apply the definition. Parts used for more than one period are PPE. Routine parts consumed within a period are inventory.
Capitalising routine repairs and maintenance. Fix: If it only maintains expected performance, it is an expense. Capitalise only when a part is replaced and the recognition criteria are met.
Capitalising trading and training costs, or general overheads, as part of the asset. Fix: Ask whether the cost is necessary to bring the asset to working condition. Training, advertising and general administration costs fail this test.
Capitalising costs incurred after the asset is ready for use, such as initial operating losses or idle capacity costs. Fix: Stop capitalisation at the ready-for-use date. Costs afterwards go to profit or loss.
Capitalising the unwinding of discount into the asset. Fix: Unwinding is a finance cost recognised in profit or loss as it occurs. Only the initial estimate and changes under IFRIC 1 touch the asset's cost.
Adding the undiscounted estimate to the asset cost. Fix: Always discount to present value first. Ind AS 37 measures the provision at present value when the time value of money is material.
Revaluing only one asset in a class and leaving the others at cost. Fix: State that the policy applies to the whole class. Revalue all items in that class at the same time, or on a rolling basis completed in a short period.
Netting gains on one asset against losses on another. Fix: Track every asset separately. A surplus on Building A cannot absorb a deficit on Building B.
Depreciating land along with the building Fix: Split the price between land and building. Depreciate only the building. Land is generally not depreciated because it has an unlimited life.
Restating prior years' depreciation when useful life or method changes Fix: A change in depreciation method, life or residual value is a change in estimate under Ind AS 8. Apply it prospectively from the date of change and disclose its nature and effect.

Exam tips

Begin written answers with the definition and the two recognition criteria, then apply them to the facts. Examiners award marks for the provision, facts and conclusion.
In case-scenario MCQs, look for hidden scope exclusions such as held for sale, mineral rights or investment property.
For spare parts, the deciding phrase is use for more than one period. Quote it in your answer.
In inspection questions, always show both the capitalisation and the derecognition of the old inspection cost.
In list-type questions, write a short reason beside every excluded item. Marks are usually split between the amount and the reasoning.
Watch the dates. Costs before the ready-for-use date are capitalised. Costs after it are expenses, even if the asset is not used at full capacity.
In exchange questions, state both tests: commercial substance and reliable fair value. Then pick the correct basis and say whether a gain or loss arises.
In MCQ case scenarios, spot the trap quickly: recoverable taxes, trade discounts, testing proceeds and training costs are the common ones.