Financial Accounting · Disclosure notes

How to Prepare the Property, Plant and Equipment Note

Updated 11 October 2026 · Fact-checked

The PPE note under IAS 16 reconciles the opening and closing carrying amount of each class of asset. You show cost (or valuation) and accumulated depreciation in columns, then adjust for additions, disposals, revaluations and the depreciation charge. Closing cost less closing depreciation must equal the figure in the statement of financial position.

Understand Property, Plant and Equipment Disclosure Note

The statement of financial position shows one line for property, plant and equipment (PPE). It gives the total carrying amount only. Users need more detail, so IAS 16 requires a note that explains how that figure was reached.

The note is a reconciliation. It starts with the balance at the beginning of the year and ends with the balance at the end of the year. In between, it shows every movement: assets bought, assets sold, revaluations and depreciation.

The usual layout has a column for each class of asset, such as land and buildings, plant and machinery, and motor vehicles, plus a total column. Rows are split into cost or valuation, accumulated depreciation and carrying amount.

The carrying amount is cost (or valuation) less accumulated depreciation. Disposals remove the asset's cost and its accumulated depreciation, not just its carrying amount. The profit or loss on disposal goes to the statement of profit or loss, not into the note.

In the exam you are given opening balances, transactions and depreciation policies. You must build the note and then pick out one figure, such as closing carrying amount or the depreciation charge. The objective test often asks for just one cell of the table.

Key formulas to remember

Closing cost or valuation: Opening cost + additions − cost of disposals ± revaluation surplus/deficit adjustment; Do this for each class of asset. Transfers between classes, if any, are also included.
Closing accumulated depreciation: Opening accumulated depreciation + charge for the year − accumulated depreciation on disposals; On a revaluation where depreciation is eliminated against cost, remove the accumulated depreciation to date from this row.
Carrying amount: Cost or valuation − accumulated depreciation; This must agree to the figure in the statement of financial position.
Profit or loss on disposal: Proceeds − carrying amount at disposal date; A positive result is a profit, a negative result is a loss. It is not shown in the PPE note.
Revaluation surplus: Fair value − carrying amount before revaluation; Credited to other comprehensive income and held in the revaluation surplus in equity.

How to solve Property, Plant and Equipment Disclosure Note questions

Use the same layout every time. Work one class of asset at a time, then total.

1Set up columns for each class of asset and a total column. Set up rows for cost or valuation, accumulated depreciation and carrying amount.
2Enter opening cost and opening accumulated depreciation from the trial balance or the prior-year note.
3Add the cost of additions to the cost row. Include costs needed to bring the asset into use, such as delivery and installation.
4Remove disposals. Take the original cost out of the cost row and the accumulated depreciation on that asset out of the depreciation row.
5Add any revaluation. Adjust cost or valuation to fair value. If depreciation is eliminated, remove accumulated depreciation to date.
6Calculate the depreciation charge for the year on the closing assets (after allowing for part-year rules in the question) and add it to accumulated depreciation.
7Total the rows. Subtract accumulated depreciation from cost to get carrying amount, and check it against the statement of financial position.
8Read the question again and answer exactly the figure requested.

Quickest way: Row-by-row cost and depreciation shortcut

When to use it: Use this when the objective test asks for one figure only, such as closing carrying amount of one class or the total depreciation charge.

Identify the single cell needed and ignore other classes of asset.
Work only the relevant row: cost for a cost question, depreciation for a depreciation question.
For carrying amount, compute: opening carrying amount + additions − carrying amount of disposals − depreciation charge (+ revaluation uplift).
Sense check: carrying amount should fall each year unless additions or revaluations exceed depreciation and disposals.

Common mistakes in Property, Plant and Equipment Disclosure Note

Removing only the carrying amount of a disposed asset from the cost row.
The disposal gain or loss calculation uses carrying amount, so students carry it over to the note.
Fix: Remove the full original cost from the cost row and the accumulated depreciation on that asset from the depreciation row.
Forgetting to include the depreciation charge in the year on assets that are disposed of.
Students depreciate only closing assets.
Fix: Follow the question's policy. If depreciation is charged in the year of disposal, include it up to disposal before working out the carrying amount sold.
Adding revaluation surplus into accumulated depreciation instead of cost or valuation.
Students mix up the equity reserve with the asset note.
Fix: The surplus changes the asset's valuation. The reserve sits in equity. In the note, adjust cost or valuation, and remove accumulated depreciation if the question says it is eliminated.
Depreciating land.
Land and buildings appear in one column.
Fix: Land is not normally depreciated. Split the figure and depreciate only the buildings.
Putting the profit or loss on disposal into the note.
Disposal appears as a row, so students show its financial effect.
Fix: The note shows cost and depreciation removed. The profit or loss goes to the statement of profit or loss.
Giving the total column when the question asks for one class.
Students rush and answer with the final figure they calculated.
Fix: Underline the class named in the question before you start.

Worked examples

Example 1

At 1 January, plant and machinery had cost $200,000 and accumulated depreciation of $80,000. During the year, plant costing $40,000 was bought. Plant that cost $30,000 with accumulated depreciation of $18,000 was sold. Depreciation is 20% straight-line on the cost of plant held at the year end. What is the closing carrying amount of plant and machinery?

Show the solution

Closing cost = 200,000 + 40,000 − 30,000 = $210,000.
Depreciation charge = 20% × 210,000 = $42,000.
Closing accumulated depreciation = 80,000 + 42,000 − 18,000 = $104,000.
Closing carrying amount = 210,000 − 104,000 = $106,000.

Answer: $106,000

Example 2

At 1 January, land and buildings were carried at cost of $500,000 (land $200,000, buildings $300,000) with accumulated depreciation of $60,000 on the buildings. On 1 January the property was revalued to $650,000 in total, of which land is $250,000 and buildings $400,000. Accumulated depreciation is eliminated against cost on revaluation. Buildings have 20 years remaining life and are depreciated straight-line with no residual value. What are the revaluation surplus and the closing carrying amount at 31 December?

Show the solution

Carrying amount before revaluation = 500,000 − 60,000 = $440,000.
Revaluation surplus = 650,000 − 440,000 = $210,000.
Depreciation charge for the year = 400,000 ÷ 20 = $20,000.
Closing cost or valuation = $650,000. Closing accumulated depreciation = $20,000.
Closing carrying amount = 650,000 − 20,000 = $630,000.

Answer: Revaluation surplus $210,000; closing carrying amount $630,000

Exam tips

Write the column headings first. A clean layout stops you losing figures when you work several classes.
Check whether the question gives accumulated depreciation or carrying amount at the start. Mixing them up is the commonest error.
Read the depreciation policy for the year of purchase and the year of sale. Apply it exactly as stated.
In multiple response questions, check each statement against the note layout. For example, a profit on disposal does not appear in the PPE note.
After you total the note, compare the carrying amount with the statement of financial position figure if one is given.

Practice questions from Disclosure notes

Property, Plant and Equipment Disclosure Note in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Property, Plant and Equipment Disclosure Note: frequently asked questions

What must the PPE note show under IAS 16?

For each class of asset, it shows the measurement basis, depreciation methods and useful lives, and a reconciliation of opening to closing carrying amount. The reconciliation includes additions, disposals, revaluations and depreciation. In the exam you mainly practise the reconciliation table.

Is the profit on disposal shown in the PPE note?

No. The note removes the cost and accumulated depreciation of the asset sold. The profit or loss on disposal is calculated separately and reported in the statement of profit or loss.

What is the difference between cost and carrying amount?

Cost is what the asset originally cost, or its revalued amount if revalued. Carrying amount is that figure less accumulated depreciation. The statement of financial position reports the carrying amount.

How do revaluations appear in the PPE note?

The cost or valuation row is adjusted to the revalued figure. The surplus goes to other comprehensive income and the revaluation surplus in equity. If accumulated depreciation is eliminated on revaluation, it is removed from the depreciation row.