LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA
MALAYSIAN ACCOUNTING STANDARDS BOARD
Property, Plant and Equipment
The standards, which have been set in bold type, should be read in the context of the background material and implementation guidance in this Standard, and in the context of the Foreword to Financial Reporting Standards. Financial Reporting Standards are not intended to apply to immaterial items.
The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment. The principal issues in accounting for property, plant and equipment are the timing of recognition of the assets, the determination of their carrying amounts and the depreciation charges to be recognised in relation to them. This Standard requires an item of property, plant and equipment to be recognised as an asset when it satisfies the definition and recognition criteria for an asset in the MASB's A Proposed Framework for the Preparation and Presentation of Financial Statements.
This Standard should be applied in accounting for property, plant and equipment except when another Financial Reporting Standard requires or permits a different accounting treatment.
This Standard supersedes MASB Approved Accounting Standard lAS 16, Property, Plant and Equipment.
This Standard does not apply to:
forests and similar regenerative natural resources; and
mineral rights, the exploration for and extraction of minerals, oil, natural gas and similar non-regenerative resources.
However, this Standard does apply to property, plant and equipment used to develop or maintain the activities or assets covered in (a) or (b) but separable from those activities or assets.
In some circumstances Financial Reporting Standards permit the initial recognition of the carrying amount of property, plant and equipment to be determined using an approach different from that prescribed in this Standard. For example, FRS 1222004, Business Combinations, requires property, plant and equipment acquired in a business combination to be measured initially at fair value even when it exceeds cost. However, in such cases all other aspects of the accounting treatment for these assets, including depreciation, are determined by the requirements of this Standard.
FRS 1252004, Accounting for Investments, permits an enterprise to treat investment properties as property in accordance with this Standard, or as long-term investments in accordance with the provisions of that standard.
A property from which the enterprise carries on a business is, in substance, not an investment property because it is owner-occupied. For this purpose, a property is considered owner-occupied when the property is held by the enterprise for use in the production or supply of goods and services or for administrative purposes. For example, if an enterprise owns and manages a hotel, services provided to guests normally account for a significant component of the overall transactions. Hence, an owner-managed hotel is not an investment property. Such property should be accounted for according to the provisions of this Standard.
In contrast, where the property is used for purposes of providing ancillary services that are a relatively minor component of the transaction as a whole, such property should be treated as an investment property. An example of such an ancillary service would be where the owner of an office building provides a security guard and maintenance service to the lessees who occupy the building.
In some circumstances it may be difficult to ascertain the significance of the provision of ancillary services or the status of the owner in a contractual arrangement with third parties and, therefore, judgement will be required to determine whether the property is an investment. In such cases it will be necessary to examine the substance of the contract and decide as to whether the owner's status is that of a passive investor or one that has merely delegated certain responsibilities to a third party under a management agreement or some other arrangement part way between these extremes. Factors to consider in reaching a decision may include the level of ancillary services provided and the exposure of the owner to variations in the cash flow generated. An enterprise should develop criteria that it can apply to ensure that it exercises any judgement consistently. These criteria should be disclosed.
This Standard does not deal with certain aspects of the application of a comprehensive system reflecting the effects of changing prices. Where enterprises apply such a system they are still required to comply with all aspects of this Standard except for those that deal with the measurement of property, plant and equipment subsequent to its initial recognition.
The following terms are used in this Standard with the meanings specified:
are held by an enterprise for use in the production or supply of goods or services, for rental to others, or for administrative or maintenance purposes; and
are expected to be used during more than one reporting period.
Carrying amount is the amount at which an asset is recognised in the balance sheet after deducting any accumulated depreciation and accumulated impairment losses thereon.
Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction.
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
Depreciable amount is the cost of an asset, or other amount substituted for cost in the financial statements, less its residual value.
Depreciated replacement cost is the current acquisition cost of an asset substituted for cost in the balance sheet after deducting accumulated depreciation and accumulated impairment losses thereon.
Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.
Impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.
Net selling price is the amount obtainable from the sale of an asset in an arm's length transaction between knowledgeable, willing parties, less the costs of disposal.
Property, plant and equipment are tangible assets that:
Recoverable amount is the higher of an asset's net selling price and its value in use.
Residual value is the net amount which the enterprise expects to obtain for an asset at the end of its useful life after deducting the expected costs of disposal.
Useful life is either:
the period of time over which an asset is expected to be used by the enterprise; or
the number of production or similar units expected to be obtained from the asset by the enterprise.
Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.