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PROPERTY, PLANT & EQUIPMENT

MFRS 116
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 MFRS 116
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is equivalent to IAS 16 Property, Plant and Equipment.

MFRS 116 does not apply to:

 PPE classified as held for sale (MFRS 5).

 biological assets related to agricultural activity (MFRS 141).
 the recognition and measurement of exploration and evaluation
assets (MFRS 6).
 mineral rights and mineral reserves (oil and natural gas)
 PROPERTY, PLANT & EQUIPMENT
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Various MFRSs which affect the

measurement of PPE

MFRS 123 MFRS 120 due to

MFRS 116 MFRS 136
(borrowing (government reclassification of
(PPE) (impairment)
costs) grants) its function/nature

MFRS 5 MFRS 140 MFRS 117

(NCAHFS) (IP) (leases)
WHAT DOES THE TERM
PPE MEAN? 0102229584
Tangible asset Do you remember the definition of an
Has physical substance , can touch asset? See conceptual Framework :
and see
An asset is a resource
( something the business can
use and benefit from)
controlled by the business as a result
of a past event( the business has the
risks and rewards of ownership
because of an event that has already
happened)
to generate future economic benefits (
to the inflow of cash of the business
 MFRS 116
–DEFINITION/IDENTIFICATION
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IDENTIFICATION

Definition (HP): assets to be classified as PPE (function and nature)

PPE are tangible items that: •
freehold land (non-depreciable)
1. H- are held for use in the •
building (depreciable)
production or supply of •
plant and equipment (depreciable)
goods and services, for •
motor vehicle (depreciable)
rental to others, or for •
office equipment (depreciable)
administrative •
fixtures and fittings (depreciable)
purposes. •
assets acquired through leases except for
leasehold land (MFRS 117)
1. P- Are expected to be
used more than one
accounting period. Identification
•Large assets - component accounting. E.g. Ship Items or parts of a
piece of property, plant and equipment that have a different
economic life or maintenance are identified and depreciated
accordingly.
•Numerous small assets - Combine as a single asset.
EXAMPLE 1
A brick manufacturer purchased a building to administer the entity’s
business. The head office building houses the entity’s accounting,
human resources and other administrative staff. The manufacturer
expects to use its head office building for about 50 years.
Question:
Is the head office building an asset?
Is the head office building an item of PPE?
SOLUTION
Is the head office building an asset?
The head office building is an asset of the manufacturer—it is a physical resource
(a brick, mortar, wood and glass structure) purchased by the manufacturer (past
event) and used at the manufacturer’s discretion (control) to house its accounting,
human resources and other administrative staff, whose work is an essential part of
operating the business and consequently the building is expected to contribute to
the flow of cash (future economic benefits) from the manufacturer’s customers to
the manufacturer.

Is the head office building asset an item of PPE?

The brick manufacturer’s head office building clearly satisfies the definition of an
item of PPE—it is made of bricks, mortar, wood and glass (it is tangible), it is used
to house those who administer the entity’s operations (held for administration
purposes) and it is expected to be used for about 50 years (in more than one
period).
 MFRS 116 - RECOGNITION
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RECOGNITION
initial costs
(FEBC) subsequent
costs

FEB: it is probable that future economic benefits

•

associated with the PPE will flow to the entity; and

•
C: the cost of the PPE can be measured reliably

Capitalised as
PPE or not?

Major spare parts and Minor spare parts and

stand-by equipment servicing equipment
qualify as PPE are usually carried as
inventory
 MFRS 116 – MEASUREMENT
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MEASUREMENT

Initial measurement Subsequent measurement

at Cost
costs revaluation
model model
Purchase price etc.
Other directly attributable costs to • Dismantling, removal, and restoration costs are part
bringing the asset to location and of property, plant, and equipment costs.
condition for intended use. • The capitalized amount is the present value of the
Initial estimate of the cost of dismantling, removal, and restoration cost
dismantling, removing, and
• The capitalized amount is depreciated over the
restoring the site.
period the property, plant, and equipment are used.
 MFRS 116 – INITIAL MEASUREMENT
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INITIAL COSTS DEPEND ON THE

TYPES OF ACQUISITION

EXCHANGE
ACQUISITION BY WAY SELF- EXCHANGE WITH
WITH ANOTHER
OF PURCHASE CONSTRUCTED SECURITIES
ASSET

payment or payment COSTS THAT BRING THE ASSET TO ITS

cash or beyond PRESENT LOCATION AND CONDITION
normal normal FOR ITS INTENDED USE
credit term credit term
MFRS 116 – SUBSEQUENT COSTS

Is an expenditure on an asset after it is brought into use such as for

What?
repairing/maintaining/improving the asset

•Renewal of road tax and insurance policy

•Installing a new multimedia system in a car that is brought into use
Example
•Replacement of parts
•Major inspection (may use estimated cost of future inspection)

Capitalised and added to the carrying amount of the

YES
asset. Remaining amount of the items replaced
should be derecognised.
Does it meet
RECOGNITION
criteria? Written/Expensed off
NO
 MFRS 116 – SUBSEQUENT COSTS
Company A acquire an item of PPE on 1 January 2008.
Depreciation would be on straight line basis with no scrap
value( Useful life=10 years). At the end of the year the
carrying amount is RM102,000. On 1st January 2012 Company
Example Q A incurred the following costs:-
• Repairs and annual overhaul of plant @ RM25,000
• Purchase a spare parts @ RM4,000
• Replacement of major parts @RM 120,000
• The carrying amount of the part that are being replaced are
@RM15,000
REQUIRED:-Discuss the accounting treatment

• Repairs and annual overhaul of plant to be expensed off

• Purchase a spare parts will be prepaid expenses and charged
as expenses when use
• Replacement of major parts to be capitalised as the economic
benefit have increased and the costs meet the recognition
criteria
Answer
• The carrying amount of the part that are being replaced are
derecognised
• Depreciation for the year end : ( RM102,000-
RM15,000+RM120,000)/6 years = RM34,500
 MFRS 116 – SUBSEQUENT MEASUREMENT
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1 2
COST MODEL OR REVALUATION MODEL
(only if fair value can be measured reliably)

carried at revalued
Frequency
carried at cost amount
less In its
accumulated surplus entity
depreciation
less
accumulated deficit
impairment
losses
accounting treatment

Entity can use any model as its accounting policy but must be consistent and use the same policy for the entire
class of PPE

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 EXAMPLE-PURCHASED
ASSET
On 1 January 2012, Yuna acquired a machine from Dina under the following terms:

RM
List price of machine 82,000
Import duty 1,500
Delivery fees 2,050
Electrical installation costs 9,500
Pre-production testing 4,900
Purchase of a 5 year maintenance contract 7,000

In addition, Yuna was given a trade discount of 10% on the initial price and 5% discount if
payment is made within 30 days. Yuna paid for the machine on 27 January 2012.
How should the machine be accounted for in the financial statements?
 SOLUTION
According to MFRS116, all costs required to bring the asset to its present location and
condition for its intended use should be capitalised. The initial purchase price of the asset
should be:

List price – trade discount 73,800 (82,000 X 90%)

Less: 5% cash discount (3,690) (5% X 73,800)
Import duty 1,500
Delivery fees 2,050
Electrical installation costs 9,500
Pre-production testing 4,900
Total amount to be capitalised 88,060

The maintenance contract is an expense (SUBSEQUENT COSTS) that should be spread over 5
years.
Accounting for Revaluation Surplus/ Deficits
Surplus on Revaluation: fair value exceeds the carrying value
disclosed in the ‘other comprehensive income’
credit into equity, under the heading of revaluation reserve
the surplus is due to a deficit in the previous revaluation – take to SOPL.

revaluation reserve is transferred to retained earnings:

 Asset is disposed or
 Through use - an amount equal to the addition depreciation is transferred to
the retained earnings

Deficit on Revaluation
charged in the current year’s income statement
the decrease can be debited to the revaluation reserve (OCI) to the extent of
any credit balance existing in the revaluation surplus in respect of that asset
 MFRS 116 – Accounting treatment for SURPLUS

Example:

Land Cost (RM) Revalued amount on (RM)

2010 2011 2012 2013

A 300,000 450,000 350,000 Sold for 370,000

Show the journal entries to record the above transactions

 MFRS 116 – Accounting treatment for SURPLUS

Example:

Land Cost (RM) Revalued amount on (RM)

2010 2011 2012 2013

A 300,000 450,000 350,000 Sold for 370,000

Show the journal entries to record the above transactions

Date Particular Debit Credit

2011 Land A 150,000
Revaluation Reserve 150,000
2012 Revaluation Reserve 100,000
Land A 100,000
2013 Bank 370,000
Land A 350,000
Gain from disposal 20,0000
2013 Revaluation Reserve 50,000
Retained profit 50,000
ABC Bhd purchased a land at the cost of RM100,000 on 1 Jan 2016. The table below provides
the fair value of the land on 31 Dec 2016 and 31 Dec 2017
1 Jan 2016 31 Dec 2016 (fair value) 31 Dec 2017 (fair value)
31 Dec 2018 FV
RM100,000 RM 120,000 RM90,000 RM100,000
Prepare:-
i)The journal entry for the year ended 31 Dec 2016 and 31 Dec 2017
ii)Extracts of SOPL, SOFP, SOCE, Notes on PPE
Dr PPE RM100,000
Cr Bank RM100,000
31 Dec 2016 RM
Dr PPE 20,000
Cr ARR 20,000
31 Dec 2017
Dr ARR 20,000
Dr SOPL – deficit in revaluation 10,000
Cr PPE 30,000
31 Dec 2018
Dr PPE 10,000
Cr SOPL 10,000
Derecognition
An item of property, plant and equipment is derecognised when it is disposed of
or when no future economic benefits are expected from its use.
asset disposed should be removed (derecognised) from the statement of
financial position.
Gain or loss on disposal is the difference between the proceeds received on
selling the asset and its carrying amount.
The gain or loss should be recognised in the SOPL but not treated as revenue.
If the asset being sold had been revalued and there was a surplus on revaluation
then the surplus remaining will be transferred to retained earnings.
 DISCLOSURE REQUIREMENT
•Measurement basis (cost/revaluation)
•Depreciation method use
•Depreciation rates
•Gross carrying amount and accumulated depreciation
•Reconciliation at the beginning and at the end of the
period
•Revaluation assets i.e:-
–Effective date?
–Independent valuer?
–Methods?
–Assumptions?
–Basis to revalue?
–Carrying amount (cost model) Revaluation surplus