Ind AS FAQs on subsequent measurement of property, plant and equipmen : 20-09-2018

1. Subsequent valuation of property, plant and equipment

Query: How an entity should measure property, plant and equipment after initial recognition?

Reply: An entity has the option to choose cost model or revaluation model for subsequent measurement of property, plant and equipment. In case of cost model, the property, plant and equipment shall be presented at its historical cost less any accumulated depreciation and any accumulated impairment losses. On the other hand, under revaluation model, the asset is measured at revalued amount less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

2. Accounting of revaluation gain and loss

Query: If there is change in value of a property, plant and equipment under revaluation model, how that change is accounted for?

Reply: If the value of an asset is increased as a result of revaluation, then the increase to the extent it reverses a previously recognised revaluation loss on the same asset, shall be recognised in statement of profit and loss. The remaining amount is credited to other comprehensive income and accumulated in equity under the heading of revaluation surplus. For example, an asset has been revalued upward by Rs. 500. 2 years ago the same asset was revalued downward by Rs. 100. Now, out of Rs. 500 of revaluation gain, Rs. 100 shall be credited to profit or loss and remaining amount of Rs. 400 shall be credited to other comprehensive income.

If the value of an asset decreases, then the decrease to the extent of any credit balance of previously recognised revaluation surplus in the same asset, shall be recognised in other comprehensive income. The remaining amount of decrease is debited to statement of profit and loss. For example, an asset has been revalued downward by Rs. 500. 2 years ago the same asset was revalued upward by Rs. 100. Now, out of Rs. 500 of revaluation loss, Rs. 100 shall be debited to other comprehensive income and remaining amount of Rs. 400 shall be debited to profit or loss.

3. Component accounting

Query: What is the component accounting?

Reply: Under component accounting, each significant component of a property, plant and equipment is recognised and depreciated separately in the books. A component of an asset is said to be significant if its cost is significant in relation to the total cost of the asset. A significant part of an item of property, plant and equipment may have a useful life and a depreciation method 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.

Source : PTI

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