How to Calculate Non-Current Asset & IAS 16 Property Plant and Equipment Standards

Posted by: Syed Shah Post Date: 17th October 2017

To calculate non-current assets, we use the help of IAS 16 Property Plant and Equipment standards, which will allow you to address four key areas. These include initial recognition, depreciation, revaluation and disposal. Here is a brief look at each of these four key areas:

Initial recognition

In IAS 16, any property, plant and equipment that qualifies for recognition must first be measured at cost.

calculate-non-current-assets

It therefore makes sense to capitalize all costs so that the asset is at its current position and condition for its envisioned use. Examples of cost include the price of the asset, directly attributable costs and the initial cost of dismantling, as well as removing the asset and restoring the site where it will be located.

You must also calculate the amount that will be included as property, plant and equipment. Add to this other costs that are incurred on the asset in the future. You need to capitalize costs when there is a likelihood that the future economic benefits will flow to the asset and also when you can reliably measure the cost of the asset.

Depreciation

There are different ways to calculate depreciation on a non-current asset including the straight-line method, declining balance method, or unit of production method. Finally, you can also calculate depreciation according to the reducing balance method.

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Revaluation

This is an important topic that you should be familiar with. There are two different treatment options available including the cost model and the revaluation model. If you choose the latter, then you need to apply it to all assets in the entire category. It’s also important to carry out revaluations on a regular basis.

When accounting for revaluation you need to find out whether there was a profit or loss on the revaluation. Profit on revaluation is really an unrealised profit which becomes realised at some point of time in the future. Revaluation losses should be charged against related revaluation surpluses and should be charged as an expense.

Disposals

An asset is derecognised from the statement of financial position whenever it is disposed of. The same is true when there are no economic benefits to be had from the use of the asset or its sale. Profits and losses from the disposal of the asset need to be charged to the Profit and Loss statement and is the difference between the asset’s carrying costs and the proceeds of the disposal. If the asset is sold on credit or on a deferred instalment basis, then the proceeds of the disposal will be taken as its cash price. Anything realised over the cash price is the interest income, which is recognised as long as the credit is valid.

Every class of property, plant and equipment requires disclosure of the measurement model, depreciation model and the depreciation rate or useful life.

These are the basics of calculating non-current assets with the help of IAS 16 Property, Plant and Equipment standards. These standards apply for the accounting treatment of the Property, Plant and Equipment. The standard does not apply to Property, Plant and Equipment which is classified as being held for sale and is covered under IFRS 5.

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