Highlight of Changes - Financial Reporting Standard 116


Property, Plant and Equipment

The Main Changes

1.

The main change from FRS 1162004 are described below.

Scope

2.

This Standard clarifies that an entity is required to apply the principles of this Standard to items of property, plant and equipment used to develop or maintain (a) biological assets and (b) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

Recognition-Subsequent Costs

3.

An entity evaluates under the general recognition principle all property, plant and equipment costs at the time they are incurred. Those 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 an item. FRS 1162004 contained two recognition principles. An entity applied the second recognition principle to subsequent costs.

Measurement at Recognition-Asset Dismantlement, Removal and Restoration Costs

4.

The cost of an item of property, plant and equipment includes the costs of its dismantlement, removal or restoration, the obligation for which an entity incurs as a consequence of installing the item. Its cost also includes the costs of its dismantlement, removal or restoration, the obligation for which an entity incurs as a consequence of using the item during a particular period for purposes other than to produce inventories during that period. FRS 1162004 included within its scope only the costs incurred as a consequence of installing the item.

Measurement at Recognition-Asset Exchange Transactions

5.

An entity is required to measure an item of property, plant and equipment acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets, at fair value unless the exchange transaction lacks commercial substance. Under FRS 1162004, an entity measured such an acquired asset at fair value unless the exchanged assets were similar.

Measurement after Recognition-Revaluation Model

6.

If fair value can be measured reliably, an entity may carry all items of property, plant and equipment of a class at a revalued amount, which is the fair value of the items at the date of the revaluation less any subsequent accumulated depreciation and accumulated impairment losses. Under FRS 1162004, use of revalued amounts did not depend on whether fair values were reliably measurable.

Depreciation-Unit of Measure

7.

An entity is required to determine the depreciation charge separately for each significant part of an item of property, plant and equipment. FRS 1162004 did not as clearly set out this requirement.

Depreciation-Depreciable Amount

8.

An entity is required to measure the residual value of an item of property, plant and equipment as the amount it estimates it would receive currently for the asset if the asset were already of the age and in the condition expected at the end of its useful life. FRS 1162004 did not specify whether the residual value was to be this amount or the amount, inclusive of the effects of inflation, that an entity expected to receive in the future on the asset's actual retirement date.

Depreciation-Depreciation Period

9.

An entity is required to begin depreciating an item of property, plant and equipment when it is available for use and to continue depreciating it until it is derecognised, even if during that period the item is idle. FRS 1162004 did not specify when depreciation of an item began and specified that an entity should cease depreciating an item that it had retired from active use and was holding for disposal.

Derecognition-Derecognition Date

10.

An entity is required to derecognise the carrying amount of an item of property, plant and equipment that it disposes of on the date the criteria for the sale of goods in FRS 1182004 Revenue would be met. FRS 1162004 did not require an entity to use those criteria to determine the date on which it derecognised the carrying amount of a disposed-of item of property, plant and equipment.

11.

An entity is required to derecognise the carrying amount of a part of an item of property, plant and equipment if that part has been replaced and the entity has included the cost of the replacement in the carrying amount of the item. FRS 1162004 did not extend its derecognition principle to such parts; rather, its recognition principle for subsequent expenditures effectively precluded the cost of a replacement from being included in the carrying amount of the item.

Derecognition-Gain Classification

12.

An entity cannot classify as revenue a gain it realises on the disposal of an item of property, plant and equipment. FRS 1162004 did not contain this provision.

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