4.3 Non-current Asset

4.3.1 IAS 16 Property, plant and equipment

1  Definitions

Property, plant and equipment are tangible assets that:

– are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

– are expected to be used during more than one period.

2  Recognition

The recognition of property, plant and equipment depends on two criteria.

a) It is probable that future economic benefits associated with the asset will flow to the entity

b) The cost of the asset to the entity can be measured reliably 

3  Initial measurement

Once an item of property, plant and equipment qualifies for recognition as an asset, it will initially be measured at cost.

v Purchase price, less any trade discount, but not cash discount

v Import duties and non-refundable purchase taxes

v Directly attributable costs of bringing the asset to working condition for its intended use

4. Subsequent expenditure 

Parts of some items of property, plant and equipment may require replacement at regular intervals.

This cost is recognised in full when it is incurred and added to the carrying amount of the asset. It will be depreciated over its expected life, which may be different from the expected life of the other components of the asset. 

5  Subsequent Measurement : Depreciation

Assets will eventually be worn out (used up) and so there is a cost of generating income.

Depreciation is the allocation of the depreciable amount of an asset over its estimated useful life.

There are two main methods for calculating depreciation:

• (a)Straight line method

• (b) Reducing balance method