Analysis of IAS 16 and IAS 37 on Property, Plant and Equipment and Provisions

Answer to Question 1(a)
Introduction
IAS 16 is constructed on the matter of Property, Plant and Equipment (PPE). PPEare the
intangible assets that are used for the producing products, or also related in official reason for
delivering services.For administrative purpose, PPE are likely to apply for additional than one
secretarial phase because of their non-current nature (Tsalavoutas and Dionysiou,2014).
Dynamics Co. Ltd has a manufacturing property.
Recognition:
As per ISA 16 Para 29, PPE are recognition at cost.
After Recognition:
The two permissible models for measuring the PPE as per Para 30and 31mentioned in IAS 16
are:
 Cost model
 Revaluation Model
At the end of reporting time, companies shall revalue their PPE with adequate regularity to
certify that the carrying amount does not differ in materiality from what they are determined
through their fair value. Revaluation is required when material difference exists between fair
value and carrying value. Annual revaluation of assets is not required though fluctuation in
value of asset prevails then the asset shall be revalued annually. In Para 35 of IAS16,
treatment of accumulated depreciation is discussed. (Guay, Samuels and Taylor 2016).

1AN ANALYSIS ON INTERNATIONAL ACCOUNTING STANDARD 16 AND 37
Accumulated depreciation is reaffirmed with the modification in the gross carrying volume of
the asset in regard to equate the revalue amount after the revaluation of asset. This is use by
applying an index to regulate its standby cost. It is abolished in contradiction of the unrefined
carrying amount of the asset and the net amount is restated to the asset’s revalued amount.
This technique is frequently used for buildings.( Harris et al. 2013).
Dynamics Co. is not able to opt for cost model as revaluation of the asset is frequently done
and the significant movement in the fair value as stated in the Para 34 of IAS 16. As per Para
36 in IAS 16, the revaluation model is used for the whole class of PPE to which that asset
belongs must be re-valued.
In this instance, as there is a significant movement in fair value, the manufacturing property
is to be re-valued to $70m. The relevant calculations and adjustments to the financial
statements are shown below:
Revaluation of Manufacturing Equipment at the 31st December 2017
PPE Working:
Particulars $million
Cost 82
Less: Depreciation 2
Carrying Value 80
The above Carrying value of $80million is compared to the revaluation amount of
$70million. Thus, a revaluation loss of $10 million is needed to be accounted for.
Revaluation Losses

2AN ANALYSIS ON INTERNATIONAL ACCOUNTING STANDARD 16 AND 37
As per Para 39 and 40, the decreased carrying amount is recorded in profit and loss and the
reduction is recorded in OCI which is not claimed in the revaluation arising out if excess
difference of asset. (Younis et al. 2013).
The adjusted entry is:
Dr. OCI (SOCI) $6 million
Dr. Profit or Loss (SOCI) $4 million
Cr. PPE – Non-Current Assets (SOFP) $10 million

3AN ANALYSIS ON INTERNATIONAL ACCOUNTING STANDARD 16 AND 37
Answer to Question 1(b)
Provisions
In Para 14 and 23 of IAS 37 discussed the conditions for the provision for its
recognition. Those conditions have to be met for its recognition. It laid that recognition of a
provision shall be only when:
 As result of past a company is having presently a legal or constructive obligation.
 There may be a possibility of settlement of an obligation through the financial profit
that outflows of possessions embodying.
 A reliable forecast of an amount can be made for an obligation. This is only possible
in the extreme unusual cases.
Probable outflow of resource (Para 23 and 24)
There must be not only a present obligation but also the probability of an outflow of
resource embodying economic benefits for the settlement of an obligation for recognition of a
liability. The outflow of resource or other event is dependent on the probability of
occurrence. When the probability does not exist regarding the existence of obligation, it is
stated as a contingent liability unless any economic benefit is embodied by the resource.
The number of similar obligations exists the probability of settlement is determined in
considering the period of obligation as a whole. A provision is recognized if it is found that
the probability of outflow of an item is small, it is obvious that resources shall be outflow for
its settlement under the class of obligation as a whole.