Malaysian Financial Reporting Standard 116 Essay

Malayan fiscal account exemplar 116Property, launch and EquipmentThis mutation embarrasss am expiryments resulting from MFRSs with telling meets no ulterior than 1 January 2012.Am oddmentments with an in do(p) examine later than 1 January 2012 MFRS 116 has been amend by MFRS 13 Fair Value touchstone*. As those amendments do an effective visualize later on(prenominal)(prenominal)(prenominal) 1 January 2012 they be non include in this edition. *effective date 1 January 2013559MFRS 116CONTENTS dissevers Preface INTRODUCTION IN1IN15 Malayan FINANCIAL REPORTING STANDARD 116 PROPERTY, comprise AND EQUIPMENT OBJECTIVE SCOPE DEFINITIONS intelligence sign comprise resultant salutes step AT RECOGNITION Elements of constitute bar of toll MEASUREMENT AFTER RECOGNITION Cost sit around review molding live and tear Depreci qualified sum supply of money and disparagement occlusive wear and tear flair outrage internet for outrage DERECOGNITION DISCLOSU RE TRANSITIONAL furnish EFFECTIVE DATE WITHDRAWAL OF new(prenominal)wise(a) PRONOUNCEMENTS 1 25 6 714 11 1214 1528 1622 2328 2966 30 3142 4362 5059 6062 63 6566 6772 7379 80 8181E 8283560IFRS bunsMFRS 116 Malayan pecuniary describe meter 116 Property, nominate and Equipment (MFRS 116) is rear out in splits 183. exclusively told the paragraphs hold back equal authority. MFRS 116 should be consider in the con schoolbook of its objective and the ass for Conclusions, the Foreword to fiscal Reporting old-hats and the conceptual Framework for Financial Reporting. MFRS 108 score Policies, Changes in chronicle Estimates and Errors provides a infrastructure for selecting and imposeing history policies in the absence of explicit counseling.IFRS al-Qaida561MFRS 116PrefaceThe Malaysian Accounting prototypes bill (MASB) is implementing its insurance of point of intersection through adopting worldwide Financial Reporting steps (IFRSs) as issued by the global Account ing trites Board (IASB) for coating for yearly boundarys show clip on or aft(prenominal)ward 1 January 2012. The IASB defines IFRSs as comprising (a) International Financial Reporting normals(b) International Accounting hackneyeds (c) IFRIC Interpretations and(d) SIC Interpretations. Malaysian Financial Reporting Standards (MFRSs) akin to IFRSs that pass on to both inform goal extraction on or subsequently 1 January 2012 ar (a) Malaysian Financial Reporting Standards and(b) IC Interpretations. First-time occupation of MFRSs alike to IFRSs Application of this Standard everyow for begin in the first-time adopters * first yearbook reporting level beginning on or by and by(prenominal) 1 January 2012 in the contextof adopting MFRSs equivalent to IFRSs. In this case, the requirements of MFRS 1 First-time Adoption of Malaysian Financial Reporting Standards must be observed. Application of MFRS 1 is needful as otherwisewise much(prenominal) pecuniary statements testament non be able to take a firm stand shape with IFRS. MFRS 1, the Malaysian equivalent of IFRS 1 First-time Adoption of International Financial Reporting Standards, requires prior rate of carry randomness, presented as inter cut information, to be re express as if the requirements of MFRSs effective for yearly detail beginning on or later 1 January 2012 have invariably been utilise, except when it (1) prohibits retrospective covering in nigh aspects or (2) allows the first-time adopter to routine one or more of the exemptions or exceptions contained in that respectin.This means that, in preparing its first MFRS pecuniary statements* for a fiscal gunpoint beginning on or after 1 January 2012, the first-time adopter shall refer to the viands contained in MFRS 1 on matters relating to transition and effective dates instead of the transitional provision and effective date contained in the individual MFRSs. This disaccords from preliminary requirements w here an entity accounted for counter metamorphoses of bill policies in unanimity with the specialized transitional provisions contained in the respective Financial Reporting Standards (FRSs) or in accord with FRS 108 Accounting Policies, Changes in Accounting Estimates and Errors when the FRS did non include crock upicular proposition transitional provisions.*Appendix A of MFRS 1 defines first-time adopter and first MFRS financial statements.562MFRS 116 In this regard the effective and effect dates contained in this Standard be those of the IASBs and ar inapplicable in the untried MFRS framework since MFRS 1 requirements go forth be put through on 1 January 2012. par and compliance with IAS 16 MFRS 116 is equivalent to IAS 16 Property, constitute and Equipment as issued and amended by the IASB, including the effective and issuance dates. Entities that comply with MFRS 116 willsimultaneously be in compliance with IAS 16.563MFRS 116IntroductionIN1 International Accoun ting Standard 16 Property, Plant and Equipment (IAS 16) replaces IAS 16 Property, Plant and Equipment (revise in 1998), and should be use for yearly finiss beginning on or after 1 January 2005. Earlier application is encouraged. The Standard in like manner replaces the by-line Interpretations SIC-6 Costs of Modifying subsisting Softw ar SIC-14 Property, Plant and Equipment stipend for the Impairment or Loss of Items SIC-23 Property, Plant and Equipmentmajor(ip) limited review or Overhaul Costs.IASBs reasons for revising IAS 16IN2 The International Accounting Standards Board developed this revised IAS 16 as wear out of its project on Improvements to International Accounting Standards. The project was at a lower placetaken in the light of queries and criticisms raised in coition to the Standards by securities regulators, sea captain accountants and other followinged take leaveies. The objectives of the project were to reduce or rule in alternatives, redundancies and c onflicts at bottom the Standards, to deal with most convergence issues and to make other improvements. For IAS 16 the IASBs main(prenominal)(prenominal) objective was a express revision to provide agreeitional guidance and clarification on selected matters. The IASB did non reckon the fundamental approach to the score for quality, arrange and equipment contained in IAS 16.IN3The main changes of IAS 16IN4 The main changes from the foregoing interpretation of IAS 16 atomic number 18 draw below.ScopeIN5 This Standard clarifies that an entity is read to apply the rationales of this Standard to features of property, coiffure and equipment apply to develop or maintain (a) biological appurtenances and (b) mineral rights and mineral reserves much(prenominal)(prenominal)(prenominal)(prenominal) as oil, natural gas and confusable non-regenerative resources. citation ulterior beIN6 An entity treasures down the stairs the general university extension article of faith all property, go under(a) and equipment terms at the time they ar incurred. Those footing include be incurred ab initio to acquire or fix an tip of property, make and equipment and make up incurred afterwards to add to, replace secern of, or swear out an feature. The previous interlingual rendition of IAS 16 contained two realisation principles. An entity applied the sec apprehension principle to subsequent be. 564IFRS creative activityMFRS 116 meter at identification plus dismantlement, remotion and restoration greet IN7 The price of an concomitant of property, all told kit and equipment includes the exist of its dismantlement, removal or restoration, the covenant for which an entity incurs as a consequence of installing the compass point. Its represent in some(prenominal) case includes the be of its dismantlement, removal or restoration, the obligation for which an entity incurs as a consequence of development the relic during a sor ticular catch for takes other than to disc over inventories during that utmost. The previous version of IAS 16 include within its kitchen range scarce the constitutes incurred as a consequence of installing the head.Measurement at identification plus flip-flop proceedingsIN8 An entity is required to flier an specific of property, prove and equipment acquired in exchange for a non-monetary summation or additions, or a crew of monetary and non-monetary additions, at decent jimmy un little the exchange operation lacks commercial message core. at a lower place the previous version of IAS 16, an entity postingd much(prenominal) an acquired summation at delightful respect un slight the exchanged summations were uniform.Measurement after science recap puzzleIN9 If seemly tax can be mensural reliably, an entity whitethorn carry all points of property, set and equipment of a discipline at a re take to bed arrive, which is the pretty regard as of the decimal points at the date of the brushup slight either subsequent accrued disparagement and hive away trauma expirationes. below the previous version of IAS 16, accustom of re jimmyd tot ups did non depend on whether moderately set were reliably metrical.Depreciation unit of measureIN10 An entity is required to determine the disparagement belt clearly for respectively epoch-making part of an accompaniment of property, congeal and equipment. The previous version of IAS 16 did not as clear set out this requirement.Depreciation depreciable metreIN11 An entity is required to measure the relaxation repute of an token of property, countersink and equipment as the essence it regards it would receive soon for the plus if the plus were already of the age and in the watch anticipate at the end of its helpful living. The previous version of IAS 16 did not specify whether the repose c atomic number 18 for was to be this numerate or the sum up, inclusive of the personal effects of inflation, that an entity expect to receive in the next on the summations existent retirement date.Depreciation disparagement stayIN12 An entity is required to begin depreciating an distributor point of property, vegetation and equipment when it is available for drill and to hold open depreciating it until it IFRS fanny565MFRS 116 is de recognized, stock-still if during that period the occurrence is deadened. The previous version of IAS 16 did not specify when dispraise of an degree began and stipulate that an entity should cease depreciating an feature that it had retired from fighting(a) use and was holding for disposal.De cognition derecognition dateIN13 An entity is required to derecognise the carrying issue forth of an spot of property, im countersink and equipment that it disposes of on the date the criteria for the exchange of goods in IAS 18 Revenue would be met. The previous version of IAS 16 did not require an entity to use those criteria to determine the date on which it de accepted the carrying standard of a give-of keepsake of property, set out and equipment. An entity is required to derecognise the carrying cadence of a part of an breaker point of property, deeds and equipment if that part has been replaced and the entity has include the personify of the fill-in in the carrying marrow of the detail. The previous version of IAS 16 did not extend its derecognition principle to much(prenominal) separate rather, its recognition principle for subsequent expenditures effectively precluded the cost of a electrical switch from being included in the carrying essence of the circumstance.IN14Derecognition pee layerificationIN15 An entity cannot crystalize as receipts a cause it realises on the disposal of an feature of property, comprise and equipment. The previous version of IAS 16 did not contain this provision.566IFRS assMFRS 116Malaysian Financial Reporting Standard 116 P roperty, Plant and Equipment clinical1 The objective of this Standard is to put the be treatment for property, give and equipment so that users of the financial statements can discern information about an entitys investment in its property, represent and equipment and the changes in such investment. The principal issues in accounting for property, localise and equipment atomic number 18 the recognition of the summations, the determination of their carrying measures and the dispraise perpetrations and impediment losses to be set in relation to them.Scope2 This Standard shall be applied in accounting for property, whole kit and caboodle and equipment except when another Standard requires or permits a dis alike(p) accounting treatment. This Standard does not apply to (a) property, set and equipment classified as held for sales event in uniformity with MFRS 5 Non-current Assets Held for Sale and discontinue Operations3(b) biological pluss cogitate to agricultural a ctivity (see MFRS 141 Agriculture) (c) the recognition and step of exploration and evaluation pluss (see MFRS 6 geographic expedition for and Evaluation of Mineral Resources) or(d) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources. However, this Standard applies to property, seed and equipment employ to develop or maintain the pluss described in (b)(d). 4 Other Standards whitethorn require recognition of an item of property, ground and equipment based on an approach different from that in this Standard.For example, MFRS 117 Leases requires an entity to evaluate its recognition of an item of readd property, bring and equipment on the groundwork of the transfer of risks and rewards. However, in such cases other aspects of the accounting treatment for these summations, including dispraise, are prescribed by this Standard. An entity use the cost shape for investment property in consistency with MFRS 140 enthronization P roperty shall use the cost model in this Standard.5Definitions6 The by-line terms are used in this Standard with the meanings specified IFRS al-Qaeda567MFRS 116 Carrying follow is the number at which an plus is recognize after deducting every(prenominal)(prenominal) stack away dispraise and accumulated impairment losses. Cost is the measuring stick of exchange or cash equivalents paying(a) or the charming value of the other consideration disposed to acquire an addition at the time of its erudition or tress or, where applicable, the summate attributed to that summation when initially appreciate in symmetry of rights with the specific requirements of other MFRSs, eg MFRS 2 Share-based Payment. Depreciable essence is the cost of an addition, or other touchstone substituted for cost, less its counterweight value. Depreciation is the overbearing assignation of the depreciable totality of an addition over its effectual life. Entity-specific value is the presen t value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useable life or expects to incur when settling a liability.Fair value is the sum up for which an asset could be exchanged among knowledgeable, willing parties in an arms length consummation. An impairment loss is the sum total by which the carrying measurement of an asset overcomes its redeemable amount. Property, arrange and equipment are tangible items that (a) are held for use in the intersection or supply of goods or services, for rental to others, or for administrative exercises and (b) are expected to be used during more than one period. recoverable amount is the higher of an assets upright value less cost to sell and its value in use. The quietus value of an asset is the regardd amount that an entity would currently come up from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its utilizable life. Useful life is (a) the period over which an asset is expected to be available for use by an entityor (b) the number of produceion or similar units expected to be obtained from the asset by an entity.Recognition7 The cost of an item of property, place and equipment shall be recognize as an asset if, and exclusively if (a) it is probable that prospective stintingal benefits associated with the item will flow to the entity and (b) the cost of the item can be mensurable reliably. 568IFRS FoundationMFRS 116 8 additional move and table service equipment are commonly carried as inventory and recognized in earnings or loss as consumed. However, major spare parts and stand-by equipment discipline as property, plant and equipment when an entity expects to use them during more than one period. Similarly, if the spare parts and run equipment can be used only in friendship with an item of property, plant and eq uipment, they are accounted for as property, plant and equipment.This Standard does not prescribe the unit of measure for recognition, ie what constitutes an item of property, plant and equipment. Thus, brain is required in applying the recognition criteria to an entitys specific circumstances. It whitethorn be inhibit to aggregate individually in profound items, such as moulds, tools and dies, and to apply the criteria to the aggregate value. An entity evaluates under this recognition principle all its property, plant and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it.910Initial costs11 Items of property, plant and equipment whitethorn be acquired for safety or environmental reasons. The acquisition of such property, plant and equipment, although not outright increasing the early economical benef its of any particular existing item of property, plant and equipment, may be essential for an entity to obtain the emerging economic benefits from its other assets. much(prenominal) items of property, plant and equipment qualify for recognition as assets because they enable an entity to derive emerging economic benefits from link assets in excess of what could be derived had those items not been acquired. For example, a chemic shaper may install new chemical handling processes to comply with environmental requirements for the merchandiseion and storage of dangerous chemicals cerebrate plant enhancements are recognised as an asset because without them the entity is unable to manufacture and sell chemicals. However, the resulting carrying amount of such an asset and related assets is reviewed for impairment in accordance with MFRS 136 Impairment of Assets.Subsequent costs12 Under the recognition principle in paragraph 7, an entity does not recognise in the carrying amount of a n item of property, plant and equipment the costs of the day-to-day servicing of the item. Rather, these costs are recognised in amplification or loss as incurred. Costs of day-to-day servicing are primarily the costs of labour and consumables, and may include the cost of small parts. The purpose of these expenditures is often described as for the repairs and sustenance of the item of property, plant and equipment. Parts of some items of property, plant and equipment may require transposition at regular intervals. For example, a furnace may require relining 13IFRS Foundation569MFRS 116 after a specified number of hours of use, or aircraft interiors such as seats and galleys may require switch several time during thelife of the airframe. Items of property, plant and equipment may excessively be acquired to make a less frequently recurring replacement, such as replacing the interior walls of a building, or to make a nonrecurring replacement. Under the recognition principle in par agraph 7, an entity recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if the recognition criteria are met. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition provisions of this Standard (see paragraphs 6772). 14 A condition of continuing to mould an item of property, plant and equipment (for example, an aircraft) may be performing regular major superintendences for faults heedless of whether parts of the item are replaced.When from each one major reappraisal is performed, its cost is recognised in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous inspection (as pellucid from physical parts) is derecognised. This occurs regardless of whether the cost of the previous inspection was identified in th e accomplishment in which the item was acquired or constructed. If essential, the estimated cost of a future similar inspection may be used as an indication of what the cost of the existing inspection component was when the item was acquired or constructed.Measurement at recognition15 An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.Elements of cost16 The cost of an item of property, plant and equipment comprises (a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.(b) any costs now attributable to bringing the asset to the localization of function and condition necessary for it to be overt of operative in the manner mean by management. (c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, theobligation for which an entity incurs either when the item is acquired or as a co nsequence of having used the item during a particular period for purposes other than to produce inventories during that period.17Examples of straight off attributable costs are (a) costs of employee benefits (as defined in MFRS 119 Employee Benefits) arising directly from the twist or acquisition of the item of property, plant and equipment570IFRS FoundationMFRS 116 (b) costs of site readiness (c) initial delivery and handling costs(d) installation and assembly costs (e) costs of testing whether the asset is functioning properly, after deducting the net harvest from selling any items produced succession bringing the asset to that military position and condition (such as samples produced when testing equipment) and professional fees.(f) 18An entity applies MFRS 102 Inventories to the costs of obligations for dismantling, removing and restoring the site on which an item is located that are incurred during a particular period as a consequence of having used the item to produce inv entories during that period. The obligations for costs accounted for in accordance with MFRS 102 or MFRS 116 are recognised and measured in accordance with MFRS 137 Provisions, Contingent Liabilities and Contingent Assets. Examples of costs that are not costs of an item of property, plant and equipment are (a) costs of first step a new facility19(b) costs of introducing a new product or service (including costs of advertizement and promotional activities) (c) costs of conducting business in a new mend or with a new class of node (including costs of staff training) and(d) administration and other general overhead costs. 20 Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the localisation and condition necessary for it to be resourceful of operating in the manner intend by management. Therefore, costs incurred in apply or redeploying an item are not included in the carrying amount of that item. For example, the f ollowing costs are not included in the carrying amount of an item of property, plant and equipment (a) costs incurred while an item open(a) of operating in the manner mean by management has yet to be brought into use or is operated at less than full potentiality(b) initial operating losses, such as those incurred while demand for the items output builds up and (c) 21 costs of relocating or reorganising part or all of an entitys operations. many operations occur in connection with the body structure or development of an item of property, plant and equipment, but are not necessary to bring the item to the localization of function and condition necessary for it to be surefooted of operating in the manner think by management. These incident operations may occur in advance or during the construction or development activities. For example, income may be earned through victimization a building site as a car park until construction starts. Because incidental operations are not IFRS Foundation571MFRS 116 necessary to bring an item to the location and condition necessaryfor it to be loose of operating in the manner intend by management, the income and related expenses of incidental operations are recognised in lolly or loss and included in their respective classifications of income and expense. 22 The cost of a self-constructed asset is compulsive utilise the resembling principles as for an acquired asset. If an entity makes similar assets for sale in the normal track of business, the cost of the asset is usually the equal as the cost of constructing an asset for sale (see MFRS 102). Therefore, any inner profitss are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of raddled material, labour, or other resources incurred in self-constructing an asset is not included in the cost of the asset. MFRS 123 Borrowing Costs establishes criteria for the recognition of divert as a component of the carrying amount of a self-constructe d item of property, plant and equipment.Measurement of cost23 The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If pay is deferred beyond normal credit terms, the loss between the cash price equivalent and the total payment is recognised as interest over the period of credit unless such interest is capitalised in accordance with MFRS 123. ane or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following raillery refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence.The cost of such an item of property, plant and equipment is measured at second-rate value unless (a) the exchange execution lacks commercial substance or (b) the reasonable value of neither the asset stock nor the asset given up is reliably measurable. The acquired item is measured in this management even if an entity cannot immediately derecognise the asset given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. An entity determines whether an exchange accomplishment has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if (a) the condition (risk, quantify and amount) of the cash flows of the assetreceived differs from the configuration of the cash flows of the asset transferred or2425(b) the entity-specific value of the piece of ground of the entitys operations tingeed by the transaction changes as a result of the exchange and (c) the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.For the purpose of rule whether an exchange transaction has commercial substance, the entity-specific value of the portion of the entitys 572 IFRS FoundationMFRS 116 operations affected by the transaction shall reflect post-tax cash flows. The result of these analyses may be clear without an entity having to perform slender calculations. 26 The fair value of an asset for which comparable commercialiseplace transactions do not exist is reliably measurable if (a) the variability in the range of sound fair value estimates is not significant for that asset or (b) the probabilities of the various estimates within the range can be moderately assessed and used in estimating fair value. If an entity is able to determine reliably the fair value of either the asset received or the asset given up, therefore the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident. The cost of an item of property, plant and equipment held by a lessee under a finance lease is headstrong in accordance with MF RS 117. The carrying amount of an item of property, plant and equipment may be reduced by government grants in accordance with MFRS 120 Accounting for administration Grants and Disclosure of Government Assistance.27 28Measurement after recognition29 An entity shall choose either the cost model in paragraph 30 or the review model in paragraph 31 as its accounting policy and shall apply that policy to an entire class of property, plant and equipment.Cost model30 After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated wear and tear and any accumulated impairment losses.Revaluation model31 After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the critical review less any subsequent accumulated wear and tear and subsequent accumulated impairment losses. Revaluations shall be make with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. The fair value of arena and buildings is usually determined from market-based evidence by appraisal that is commonly undertaken by professionally qualified valuers. The fair value of items of plant and equipment is usually their market value determined by appraisal. If there is no market-based evidence of fair value because of the specialised nature of the item of property, plant and equipment and the item is rarely3233IFRS Foundation573MFRS 116 sold, except as part of a continuing business, an entity may regard to estimate fair value using an income or a detract fromd replacement cost approach. 34 The frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment being revalued. When the fair value of a revalued asset differs materially from its carrying amoun t, a further revaluation is required. more or less items of property, plant and equipment experience significant and quicksilver(a) changes in fair value, thus necessitating yearly revaluation. such frequent revaluations are needless for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years. When an item of property, plant and equipment is revalued, any accumulated wear and tear at the date of the revaluation is treated in one of the following shipway (a) restated proportionately with the change in the tax income carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount. This manner is often used when an asset is revalued by means of applying an index to determine its underrated replacement cost.35(b) eliminated against the gross(a) carrying amount of the asset and the net amount restated to the revalued am ount of the asset. This order acting is often used for buildings. The amount of the adjustment arising on the restatement or elimination of accumulated depreciation forms part of the sum up or decrease in carrying amount that is accounted for in accordance with paragraphs 39 and 40. 36 If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued. A class of property, plant and equipment is a crowding of assets of a similar nature and use in an entitys operations. The following are examples of separate classes (a) land37(b) land and buildings (c) machinery(d) ships (e) (f) aircraft get vehicles(g) furniture and fixtures and (h) office equipment.574IFRS FoundationMFRS 116 38 The items within a class of property, plant and equipment are revalued simultaneously to avoid discriminating revaluation of assets and the reporting of amounts in the financial statements that are a mixture of costs and values as at different dates. However, a class of assets may be revalued on a rolling basis provided revaluation of the class of assets is completed within a short period and provided the revaluations are kept up to date. If an assets carrying amount is ontogenyd as a result of a revaluation, the increase shall be recognised in other general income and accumulated in equity under the heading of revaluation pointless. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset antecedently recognised in profit or loss. If an assets carrying amount is decrease as a result of a revaluation, the decrease shall be recognised in profit or loss.However, the decrease shall be recognised in other panoptic income to the extent of any credit rest period existing in the revaluation prodigality in respect of that asset. The decrease recognised in other encyclopedic income reduces the amount accumulated in equity under the heading of revaluation surplus. The revaluation surplus included in equity in respect of an item of property, plant and equipment may be transferred directly to retained earnings when the asset is derecognised. This may charter transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset anddepreciation based on the assets original cost. Transfers from revaluation surplus to retained earnings are not made through profit or loss. The effects of taxes on income, if any, resulting from the revaluation of property, plant and equipment are recognised and disclose in accordance with MFRS 112 Income Taxes.39404142Depreciation43 Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. An entity allocates the amount initially recognised in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. For example, it may be reserve to depreciate separately the airframe and engines of an aircraft, whether owned or subject to a finance lease. Similarly, if an entity acquires property, plant and equipment subject to an operating lease in which it is the lessor, it may be appropriate to depreciate separately amounts reflected in the cost of that item that are attributable to favourable or unfavourable lease terms relative to market terms.44IFRS Foundation575MFRS 116 45 A significant part of an item of property, plant and equipment may have a useful life and a depreciation system that are the same as the useful life and the depreciation method of another significant part of that same item. Such parts may be grouped in determining the depreciation charge. To the extent that an entity depreciates separately some parts of an item of property, plant and equipment, it also depreciates separately the remainder of the item. The remainder consists of the parts of the item that are individually not significant. If an entity has vary expectations for these parts, approximation techniques may be necessary to depreciate the remainder in a manner that faithfully represents the habit grade and/or useful life of its parts. An entity may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item. The depreciation charge for each period shall be recognised in profit or loss unless it is included in the carrying amount of another asset.The depreciation charge for a period is usually recognised in profit or loss. However, sometimes, the future economic benefits embody in an asset are absorbed in producing other assets. In this case, the depreciation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the depreciation of manufacturing plant and equipment is included in the costs of conversion of inventories (see MFRS 102). Similarly, depreciation of property, plant and equipment used for development activities may be included in the cost of an nonphysical asset recognised in accordance with MFRS 138 Intangible Assets. Depreciable amount and depreciation period 50 51 The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.The residual value and the useful life of an asset shall be reviewed at least(prenominal) at each financial year-end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate in accordance with MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors. Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as long as the assets residual value does not exceed its carrying amount. Repair and sustentation of an asset do not negate the need to depreciate it. The depreciable amount of an asset is determined after deducting its residual value. In practice, the residual value of an asset is ofteninsignificant and therefrom immaterial in the calculation of the depreciable amount. The residual value of an asset may increase to an amount equal to or greater than the assets carrying amount. If it does, the assets depreciation charge is4647 48 49525354576IFRS FoundationMFRS 116 zero unless and until its residual value subsequently decreases to an amount below the assets carrying amount. 55 Depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the introductory of the date that the asset is classified as held for sale (or included in a d isposal group that is classified as held for sale) in accordance with MFRS 5 and the date that the asset is derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from progressive use unless the asset is fully depreciated.However, under usage methods of depreciation the depreciation charge can be zero while there is no production. The future economic benefits embodied in an asset are consumed by an entity mainly through its use. However, other factors, such as technical or commercial obsolescence and wear and tear while an asset stay idle, often result inthe drop-off of the economic benefits that might have been obtained from the asset. Consequently, all the following factors are considered in determining the useful life of an asset (a) expected usage of the asset. Usage is assessed by reference to the assets expected capacity or physical output.56(b) expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used and the repair and maintenance programme, and the care and maintenance of the asset while idle. (c) technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset.(d) judicial or similar limits on the use of the asset, such as the expiry dates of related leases. 57 The useful life of an asset is defined in terms of the assets expected utility to the entity. The asset management policy of the entity may involve the disposal of assets after a specified time or after wasting disease of a specified proportion of the future economic benefits embodied in the asset. Therefore, the useful life of an asset may be shorter than its economic life. The estimation of the useful life of the asset is a matter of understanding based on the experience of the entity with similar assets.Land and buildings are separable assets and are accounted for separately, even when they are acquired together. With some exceptions, such as quarries and sites used for landfill, land has an inexhaustible useful life and therefore is not depreciated. Buildings have a special useful life and therefore are depreciable assets. An increase in the value of the land on which a building stands does not affect the determination of the depreciable amount of the building. If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is depreciated over the period of benefits obtained by incurring those costs. In some cases, the land itself may5859IFRS Foundation577MFRS 116 have a limited useful life, in which case it is depreciated in a manner that reflects the benefits to be derived from it. Depreciation method 60 61 The depreciation method used shall reflect the configuration in which the assets future economic benefits are expected to be consumed by the entity. The depreciation method appli ed to an asset shall be reviewed at least at each financial year-end and, if there has been a significant change in the expected figure of consumption of the future economic benefits embodied in the asset, the method shall be changed to reflect the changed strain. Such a change shall be accounted for as a change in an accounting estimate in accordance with MFRS 108. A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life.These methods include the straight-line method, the lessen balance method and the units of production method. Straight-line depreciation results in a constant charge over the useful life if the assets residual value does not change. The diminishing balance method results in a decreasing charge over the useful life. The units of production method results in a charge based on the expected use or output. The entity selects the method that most closely reflects the expected pattern of con sumption of the future economic benefits embodied in the asset. That method is applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic benefits.62Impairment63 To determine whether an item of property, plant and equipment is impaired, an entity applies MFRS 136 Impairment of Assets. That Standard explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss. Deleted by IASB64Compensation for impairment65 Compensation from terce parties for items of property, plant and equipment that were impaired, lost or given up shall be included in profit or loss when the wages becomes receivable. Impairments or losses of items of property, plant and equipment, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events and are accounted for separately as follows (a) impairments of items of property, plant and equipment are recognised in accordance with MFRS 13666578IFRS FoundationMFRS 116 (b) derecognition of items of property, plant and equipment retired or disposed of is determined in accordance with this Standard (c) compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in determining profit or loss when it becomes receivable and(d) the cost of items of property, plant and equipment restored, purchased or constructed as replacements is determined in accordance with this Standard.Derecognition67 The carrying amount of an item of property, plant and equipment shall be derecognised (a) on disposal or (b) when no future economic benefits are expected from its use or disposal. 68 The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit or loss when the item is derecognised (unless MFRS 117 requires otherwise on a sale and leaseback). Gains shall not be classified as revenue. However, an entity that, in the course of its ordinary activities, routinely sells items of property, plant and equipment that it has held for rental to others shall transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets shall be recognised as revenue in accordance with MFRS 118 Revenue. MFRS 5 does not apply when assets that are held for sale in the ordinary course of business are transferred to inventories.The disposal of an item of property, plant and equipment may occur in a variety of ways (eg by sale, by entering into a finance lease or by donation). In determining the date of disposal of an item, an entity applies the criteria in MFRS 118 for recognising revenue from the sale of goods. MFRS 117 applies to disposal by a sale and leaseback. If, under the recognition principle in paragraph 7, an entity recognises in the carrying amount of an item of property, plant and equipment the cost of a replacement for part of the item, then it derecognises the carrying amount of the replaced part regardless of whether the replaced part had been depreciated separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.68A697071IFRS Foundation579MFRS 116 72 The consideration receivable on disposal of an item of property, plant and equipment is recognised initially at its fair value. If payment for the item is deferred, the consideration receiv ed is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as interest revenue in accordance with MFRS 118 reflecting the effective afford on the receivable.Disclosure73 The financial statements shall disclose, for each class of property, plant and equipment (a) the measurement bases used for determining the gross carrying amount (b) the depreciation methods used (c) the useful lives or the depreciation rates used(d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period and (e) a reconciliation of the carrying amount at the beginning and end of the period showing (i) (ii) additions assets classified as held for sale or included in a disposal group classified as held for sale in accordance with MFRS 5 and other disposals acquisitions through business combinations increases or decreases re sulting from revaluations under paragraphs 31, 39 and 40 and from impairment losses recognised or converse in other comprehensive income in accordance with MFRS 136 impairment losses recognised in profit or loss in accordance with MFRS 136 impairment losses reversed in profit or loss in accordance with MFRS 136(iii) (iv)(v) (vi)(vii) depreciation (viii) the net exchange differences arising on the transmutation of the financial statements from the functional notes into a different presentation currency, including the translation of a foreign operation into the presentation currency of the reporting entity and (ix) other changes.580IFRS FoundationMFRS 116 74 The financial statements shall also disclose (a) the mankind and amounts of restrictions on title, and property, plant and equipment pledged as security for liabilities (b) the amount of expenditures recognised in the carrying amount of an item of property, plant and equipment in the course of its construction (c) the amount of contractual commitments for the acquisition of property, plant and equipment and(d) if it is not break separately in the statement of comprehensive income, the amount of compensation from third parties for items of property, plant and equipment that were impaired, lost or given up that is included in profit or loss. 75 Selection of the depreciation method and estimation of the useful life of assets are matters of judgement. Therefore, disclosure of the methods adopted and the estimated useful lives or depreciation rates provides users of financial statements with information that allows them to review the policies selected by management and enables comparisons to be made with other entities. For similar reasons, it is necessary to disclose (a) depreciation, whether recognised in profit or loss or as a part of the cost of other assets, during a period and(b) accumulated depreciation at the end of the period. 76 In accordance with MFRS 108 an entity discloses the nature and effect o f a change in an accounting estimate that has an effect in the current period or is expected to have an effect in subsequent periods. For property, plant and equipment, such disclosure may arise from changes in estimates with respect to (a) residual values(b) the estimated costs of dismantling, removing or restoring items of property, plant and equipment (c) useful lives and(d) depreciation methods. 77 If items of property, plant and equipment are stated at revalued amounts, the following shall be let out (a) the effective date of the revaluation (b) whether an free valuer was involved (c) the methods and significant assumptions applied in estimating the items fair values(d) the extent to which the items fair values were determined directly by reference to observable prices in an active market or recent market transactions on arms length terms or were estimated using other valuation techniques IFRS Foundation581MFRS 116 (e) for each revalued class of property, plant and equipment, the carrying amount that would have been recognised had the assets been carried under the cost model and the revaluation surplus, indicating the change for the period and any restrictions on the distribution of the balance to shareholders.(f) 78In accordance with MFRS 136 an entity discloses information on impaired property, plant and equipment in addition to the information required byparagraph 73(e)(iv)(vi). Users of financial statements may also find the following information relevant to their ask (a) the carrying amount of temporarily idle property, plant and equipment79(b) the gross carrying amount of any fully depreciated property, plant and equipment that is still in use (c) the carrying amount of property, plant and equipment retired from active use and not classified as held for sale in accordance with MFRS 5 and(d) when the cost model is used, the fair value of property, plant and equipment when this is materially different from the carrying amount. Therefore, entities a re encouraged to disclose these amounts.Transitional provisions80 The requirements of paragraphs 2426 regarding the initial measurement of an item of property, plant and equipment acquired in an exchange of assets transaction shall be applied prospectively only to future transactions.Effective date81 An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that fact. An entity shall apply the amendments in paragraph 3 for annual periods beginning on or after 1 January 2006. If an entity applies MFRS 6 for an earlier period, those amendments shall be applied for that earlier period. MFRS 101 Presentation of Financial Statements (IAS 1 Presentation of Financial Statements as revised by IASB in 2007) amended the terminology used throughout MFRSs. In addition it amended paragraphs 39, 40 and 73(e)(iv). An entity shall a pply those amendments for annual periods beginning on or after 1 January 2009. If an entity applies MFRS 101 (IAS 1 revised by IASB in 2007) for an earlier period, the amendments shall be applied for that earlier period.81A81B582IFRS FoundationMFRS 116 81C MFRS 3 work Combinations (IFRS 3 Business Combinations as revised by IASB in 2008) amended paragraph 44. An entity shall apply that amendment for annual periods beginning on or after 1 July 2009. If an entity applies MFRS 3 (IFRS 3 revised by IASB in 2008) for an earlier period, the amendment shall also be applied for that earlier period. carve ups 6 and 69 were amended and paragraph 68A was added by Improvements to MFRSs (Improvements to IFRSs issued by IASB in May 2008). An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. Earlier application is permitted.If an entity applies the amendments for an earlier period it shall disclose that fact and at the same time apply the related amendm ents to MFRS 107 Statement of Cash Flows. split 5 was amended by Improvements to MFRSs (Improvements to IFRSs issued by IASB in May 2008). An entity shall apply that amendment prospectively for annual periods beginning on or after 1 January 2009. Earlier application is permitted if an entity also applies the amendments to paragraphs 8, 9, 22, 48, 53, 53A, 53B, 54, 57 and 85B of MFRS 140 at the same time. If an entity applies the amendment for an earlier period it shall disclose that fact.81D81E insularism of other pronouncements82 83 Deleted by MASB Deleted by MASBIFRS Foundation583MFRS 116Deleted IAS 16 textDeleted IAS 16 text is produced for information only and does not form part of MFRS 116. Paragraph 82 This Standard supersedes IAS 16 Property, Plant and Equipment (revised in 1998). Paragraph 83 This Standard supersedes the following Interpretations (a) SIC-6 Costs of Modifying Existing software(b) SIC-14 Property, Plant and EquipmentCompensation for the Impairment or Loss of Items and (c) SIC-23 Property, Plant and EquipmentMajor Inspection or Overhaul Costs.584IFRS Foundation