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CMA Final · Corporate Financial Reporting

Property, Plant and Equipment (Ind AS 16) for CMA Final

Ind AS 16 sets how you recognise, measure, depreciate, impair and derecognise property, plant and equipment. To solve questions, fix the cost first, split it into components, pick the cost or revaluation model, charge depreciation over the useful life, then handle impairment, compensation and disposal gain or loss.

What this chapter covers

Ind AS 16 covers tangible items held for use in production or supply of goods or services, for rental to others, or for administrative purposes, and expected to be used during more than one period. The chapter follows the life of an asset: recognition, initial cost, later spending, measurement after recognition, depreciation, impairment, derecognition and disclosure.

The standard links to many other parts of Corporate Financial Reporting. Impairment is handled under Ind AS 36. Government grants follow Ind AS 20. Investment property under Ind AS 40 uses the cost model of this standard for owned property. Disposal consideration follows the transaction price rules of Ind AS 115. Changes in useful life, residual value or method are changes in estimates under Ind AS 8.

You will meet this chapter as short MCQs on definitions and model choice, and as numerical questions on cost build-up, revaluation, depreciation and disposal. It also supports questions on financial statements, so a clear grip here saves time elsewhere.

PPE is the largest asset class in many Indian companies, so examiners return to it often, both as standalone MCQs and as part of larger numerical questions on financial statements. The rules are compact and the numerical patterns repeat: cost build-up, component depreciation, revaluation surplus, impairment and disposal. If you learn the logic once, you can score reliably, and the same logic helps in related chapters on impairment, grants and estimates.

Property, Plant and Equipment (Ind AS 16): topics in the order to study them

  1. 1Scope and Recognition of PPE under Ind AS 16Start with the definition and recognition test, because every later rule applies only to items that qualify as PPE.
  2. 2Measurement at Recognition and Cost ComponentsCost is the base for all later workings, so learn what goes into it and what stays out before anything else.
  3. 3Subsequent Costs and Component AccountingOnce you know initial cost, you can decide which later spending is capitalised and how parts are separated.
  4. 4Cost Model and Revaluation ModelThis decides the carrying amount after recognition, and you must know it before you can compute depreciation on a revalued asset.
  5. 5Depreciation under Ind AS 16Depreciation uses cost or revalued amount, residual value and useful life, so it sits after the models.
  6. 6Impairment, Compensation and DerecognitionThese deal with the end of the asset's life and build on carrying amount after depreciation.
  7. 7Disclosure Requirements of Ind AS 16Finish with disclosures, which are easier once you understand every measurement choice they report.

How to prepare Property, Plant and Equipment (Ind AS 16)

Treat this chapter as a sequence of workings. Learn each rule, then practise the number pattern that goes with it.

  1. Read the definition of PPE and the recognition criteria, and list two or three items that fail the test, such as items not expected to be used for more than one period.
  2. Build a cost checklist and practise cost sheets that separate capitalised items from expenses, including the effect of Government grants under Ind AS 20 where the carrying amount is reduced.
  3. Practise component accounting: split an asset into parts with different lives, depreciate each, and treat replacement of a part correctly.
  4. Learn that the policy of cost model or revaluation model applies to an entire class of PPE, then solve revaluation questions with surplus, deficit and later depreciation.
  5. Do depreciation problems with changes in useful life, residual value or method, and treat each as a change in estimate applied prospectively.
  6. Work through impairment, compensation and disposal: remember that impairment follows Ind AS 36, compensation is in profit or loss when receivable, and derecognition gain or loss is computed under this standard.
  7. Revise disclosures last, then attempt a mixed set of MCQs and one full numerical question under time pressure.

Common mistakes in Property, Plant and Equipment (Ind AS 16)

  • Capitalising items that are really running expenses, or leaving out directly attributable costs.

    Fix: Ask for each item whether it is directly needed to acquire or ready the asset. If yes, capitalise it. If it is general overhead or a running cost, expense it.

  • Applying the revaluation model to one asset instead of the whole class.

    Fix: Remember that the policy applies to an entire class of PPE. Check whether the question gives class details before you revalue.

  • Treating a change in useful life or residual value as a prior period error and restating old years.

    Fix: Treat these as changes in estimate under Ind AS 8. Spread the remaining depreciable amount over the remaining life, with no restatement of past years.

  • Mixing up impairment, compensation and replacement as one event.

    Fix: Account for each separately: impairment under Ind AS 36, compensation in profit or loss when receivable, and replacement asset at its own cost under Ind AS 16.

  • Computing depreciation on the wrong base after revaluation or part replacement.

    Fix: After revaluation, depreciate the revalued amount over the remaining life. After replacing a part, remove the old part's carrying amount and depreciate the new part separately.

Last-day revision: Property, Plant and Equipment (Ind AS 16)

  • PPE: tangible items held for production, supply, rental to others or administration, expected to be used for more than one period.
  • Cost is cash or cash equivalents paid, or the fair value of other consideration given, at acquisition or construction.
  • Government grants may reduce the carrying amount of PPE, in line with Ind AS 20.
  • After recognition, choose the cost model or the revaluation model as an accounting policy.
  • The chosen policy applies to an entire class of PPE, not to single items.
  • Cost model: cost less accumulated depreciation and accumulated impairment losses.
  • Revaluation model: fair value at revaluation date less later depreciation and impairment; fair value must be reliably measurable.
  • Revalue with enough regularity that carrying amount does not differ materially from fair value at the reporting date.
  • Impairment follows Ind AS 36; recoverable amount is the higher of fair value less costs of disposal and value in use.
  • Compensation from third parties for impaired, lost or given up items goes to profit or loss when it becomes receivable.
  • Changes in residual value, useful life or depreciation method are changes in estimates under Ind AS 8.
  • Owned investment property under Ind AS 40 uses the cost model of Ind AS 16.

Property, Plant and Equipment (Ind AS 16) practice questions

Property, Plant and Equipment (Ind AS 16) 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 (Ind AS 16): frequently asked questions

Is Ind AS 16 important for CMA Final Paper 18?

Yes. It is a core standard in Corporate Financial Reporting and can appear in MCQs and in numerical questions. It also supports questions on financial statements and on impairment.

Can I use the revaluation model for only some assets?

You choose the cost model or the revaluation model as an accounting policy, and you apply it to an entire class of PPE. So you can differ between classes, but not within one class.

Where is impairment of PPE covered?

Impairment of PPE is recognised under Ind AS 36, not Ind AS 16. Ind AS 16 only says that impairment, compensation and replacement are separate economic events accounted for separately.

How should I treat a change in useful life?

It is a change in an accounting estimate under Ind AS 8. You apply it from the current period onwards and disclose its nature and effect.