Section 15: Property, Plant and Equipment (AASB1061_04-26)

This section applies to: 

(a) property, plant and equipment; and 

(b) investment property the fair value of which cannot be measured reliably on a continuing basis and other investment property measured under the cost model; 

except when paragraph 1.5 or another section of this Standard requires or permits a different accounting treatment.

Property, plant and equipment are tangible assets that are: 

(a) held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and 

(b) expected to be used during more than one reporting period.

An entity shall record an item of property, plant and equipment as an asset when it is purchased by, or donated to, the entity.

An item of property, plant and equipment shall initially be measured at its cost. However, if an item of property, plant and equipment was donated to the entity, that entity may elect to initially measure the item either at: 

(a) its cost to the entity (which might be nil, a nominal amount or another significantly discounted amount); or 

(b) its fair value as at the date of donation, measured in accordance with Section 11. Any resulting increase in property, plant and equipment is recorded as donation income (revenue) in accordance with Section 20.

The cost of an item of property, plant and equipment comprises all of the following: 

(a) its purchase price, including legal and brokerage fees, import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; 

(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management (eg initial delivery and handling and installation costs); and 

(c) the initial estimate of the cost of dismantling and removing the item and restoring the site on which it is located (ie “make good” obligation).

The following costs are not costs of an item of property, plant and equipment and shall be recorded as an expense when they are incurred: 

(a) costs of opening a new facility; 

(b) costs of introducing a new good or service (including costs of advertising and promotional activities) and costs of operating in a new location or with a new class of beneficiaries (including costs of staff training); and 

(c) administration and other general overhead costs.

Notwithstanding paragraph 15.5, an entity may exclude from the costs of constructing an item of property, plant and equipment a systematic allocation of overhead costs incurred in the construction process and the depreciation of items of property, plant and equipment and intangible assets used in their construction. In this case, this election shall be applied consistently to all property, plant and equipment constructed by the entity.

An entity shall choose either the cost model in paragraph 15.12 or the revaluation model in paragraph 15.13 as its accounting policy and shall apply that policy to an entire class of property, plant and equipment. Where an entity initially measures an item of donated property, plant and equipment at fair value, this amount shall be regarded as its cost for the purposes of applying the cost model.

A class of property, plant and equipment is a grouping of property, plant and equipment of a similar nature or function. Possible classes of property, plant and equipment are: 

(a) land; 

(b) land and buildings; 

(c) motor vehicles; 

(d) furniture and fixtures; 

(e) office equipment; 

(f) computers; and 

(g) machinery.

An entity that changes its accounting policy from the cost model to the revaluation model for a class of property, plant and equipment shall not subsequently revert to the cost model for that class.

An entity shall record the costs of day-to-day servicing of an item of property, plant and equipment in profit or loss in the reporting period in which the costs are incurred.

An entity shall measure an item of property, plant and equipment after initial recording at cost less any accumulated depreciation and any accumulated impairment losses recorded in accordance with Section 22.

After initial recording, an entity shall measure an item of property, plant and equipment for which fair value can be measured reliably at a revalued amount, being its fair value as at the date of the revaluation less any subsequent accumulated depreciation. Revaluations shall be made 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. Section 11 provides guidance on determining fair value. 

When the fair value of an item within a class of revalued property, plant, and equipment cannot be measured reliably, the entity shall measure that item using the cost model until the item is once again reliably measurable. The item’s carrying amount when its fair value ceased being reliably measurable shall be regarded as its cost for the purposes of applying the cost model. Applying the cost model to an item of property, plant and equipment in the circumstances described in this paragraph is not a change in accounting policy.

If the carrying amount of a class of assets is increased as a result of a revaluation, the revaluation increase shall be recorded in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the revaluation increase shall be recorded in profit or loss to the extent that it reverses a revaluation decrease of the same class of assets previously recorded in profit or loss.

If the carrying amount of a class of assets decreased as a result of a revaluation, the revaluation decrease shall be recorded in profit or loss. However, the revaluation decrease shall be recorded in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that same class of assets. The revaluation decrease recorded in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.

An entity shall allocate the depreciable amount of an asset on a systematic basis over its useful life. The depreciation charge for each period shall be recorded in profit or loss unless another section of this Standard requires or permits some or all of the charge to be recorded as part of the cost of an asset. For example, the depreciation of manufacturing property, plant and equipment might be included as part of the costs of conversion of inventories (see Section 12). 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.

If the major components of an item of property, plant and equipment have significantly different useful lives or patterns of consumption of economic benefits, an entity shall allocate the initial cost of the asset to its major components and depreciate each such component separately over its useful life. Other assets are depreciated over their useful lives as a single asset. Land is considered to have an unlimited useful life and is not depreciated.

An entity shall consider all the following factors in determining the useful life of an asset: 

(a) the expected usage of the asset, assessed by reference to the asset’s expected capacity or physical output; 

(b) expected physical wear and tear; 

(c) technical or commercial obsolescence arising from changes or improvements in production, or from a change in the external demand for the output (goods or services) of the asset; and 

(d) legal or similar limits on the use of the asset, such as the expiry dates of related leases.

If an asset has been damaged physically or its capacity to provide services has been affected adversely as a result of the entity either: 

(a) having changed its strategy; or 

(b) being affected by a reduction in external demand for its services;

this might indicate that the residual value, useful life or pattern of consumption of the future economic benefits embodied in the asset has changed since the most recent annual reporting date. If such indicators are present, the entity shall review its previous estimates and, if current expectations differ, amend the residual value, useful life or depreciation method. The entity shall account for the change in residual value, useful life or depreciation method as a change in an accounting estimate in accordance with Section 9.

Depreciation of an asset ceases when the asset ceases to be recorded. Depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated.

An entity shall select a depreciation method that reflects the pattern in which it expects to consume the asset’s future economic benefits. Possible depreciation methods include the straight-line method, the diminishing balance method and a method based on usage such as the units of production method.

If there is an indication that there has been a significant change since the last annual reporting date in the pattern in which an entity expects to consume an asset’s future economic benefits, the entity shall review its present depreciation method and, if current expectations differ, change the depreciation method to reflect the new pattern. The entity shall account for the change as a change in an accounting estimate in accordance with Section 9.

An entity shall cease recording an item of property, plant and equipment when: 

(a) it is sold or otherwise disposed of; or 

(b) no future economic benefits are expected from its use or disposal.

For the purposes of paragraph 15.24(b), an entity needs to consider the possibility that no future economic benefits are expected from the use or disposal of an asset only when: 

(a) the asset has been damaged physically; or 

(b) the entity has changed its strategy or been affected by a reduction in external demand for its services and in either case the asset’s capacity to provide services might have been affected adversely as a result.

An entity shall determine the gain or loss arising from ceasing to record an item of property, plant and equipment as the difference between the net disposal proceeds, if any, and the carrying amount of the item. An entity shall record the gain or loss in profit or loss in the reporting period in which the item ceases to be recorded as an asset. The entity shall not classify such a gain as revenue.

An entity shall disclose the following for each class of property, plant and equipment, and for investment property measured under the cost model: 

(a) the measurement bases used; 

(b) the carrying amount at the beginning and end of the reporting period; 

(c) increases or decreases resulting from revaluations recorded in other comprehensive income under paragraphs 15.15 and 15.16; 

(d) impairment losses recorded in profit or loss and the related line item(s) in the statement(s) of profit or loss and other comprehensive income; and 

(e) depreciation.

An entity shall also disclose: 

(a) the existence and carrying amounts of property, plant and equipment to which the entity has restricted title or that is pledged as security for loans; 

(b) the amount of contractual commitments for the acquisition of property, plant and equipment; and 

(c) if the entity has investment property whose fair value cannot be measured reliably on a continuing basis, it shall disclose that fact and the reasons why fair value cannot be measured reliably for those items of investment property.

If items of property, plant and equipment are stated at revalued amounts, an entity shall disclose: 

(a) the effective date of the revaluation; and 

(b) whether an independent valuer was involved.

Where, in accordance with paragraph 15.4(a), an entity initially measures donated items of property, plant and equipment at cost, it shall disclose, for each material item, information that helps users of financial statements to assess: 

(a) the entity’s dependence on donated assets; and 

(b) the nature and terms of the donation arrangement, including: 

(i) a description of the donated asset and the class of assets to which it relates; 

(ii) any amounts owing to the donor at the reporting date; and 

(iii) restrictions on the use of the donated asset imposed by the donor.

The disclosures in paragraph 15.30: 

(a) shall be aggregated for donated assets of a similar nature; and 

(b) need not be made in respect of any donated assets measured using the revaluation model. 

An entity shall consider the level of detail necessary to enable those assessments by users of financial statements. The disclosures shall be aggregated or disaggregated so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items with substantially different characteristics.