IAS 16 - Property, Plant and Equipment removes the minimum value criteria for an asset to be recorded as a tangible asset, this would lead to a significant increase in the balance of Non-current asset on the financial statement.
Revaluation mode- if applicable may increase or decrease the value of the Tangible asset of the entity – reflecting the fair value of the asset at the date of revaluation. The impact of the revaluation model will be presented on the Statement of Other Comprehensive Income (as introduced in IAS 1 - Presentation of Financial Statement). Fair value assessment using the revaluation is presented in IFRS 13 - Fair value measurement.
By applying IAS 16, Property, Plant and Equipment shall not be carried at more than recoverable amount (Recoverable amount is the higher of (a) the asset’s fair value less costs to sell and (b) its value in use).
Accounting policy for amortization expenses related tools and other physical assets currently recording as Prepayments will change under the application of the IAS 16 - Property, Plant and Equipment.
Conversion issues
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Content |
IFRS |
VAS |
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IAS 16 and VAS 3 – Property, Plant and Equipment |
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Recognition of tangibles assets |
No threshold for recognition of fixed assets is set. |
Current requirements regarding value are met, which the threshold for recognition of fixed asset is VND 30 million. |
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Depreciation of asset components |
Specific requirements to depreciate major parts of an asset separately. May have different useful lives for the same assets. |
Limited guidance on asset separation and tracking. |
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Measurement After initial recognition |
Permits 2 accounting models: Cost model: The asset is carried at costs less accumulated depreciation and impairment. Revaluation model: The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably. |
Only costs model allowed. Property, Plant, and Equipment are permitted to be evaluated in a limited case. |
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New definition and requirement of IAS 16 |
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Initial measurement – Cost |
An item of Property, Plant, and Equipment should initially be recorded at cost, which includes all costs necessary to bring the asset to working condition for its intended use. If payment for an item of Property, Plant, and Equipment is deferred, interest at a market rate must be recognized or imputed. |
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Treatment of revaluation movement |
If a revaluation increases in value, it should be credited to Other Comprehensive Income and accumulated in equity under the heading "revaluation surplus" unless it represents the reversal of a revaluation decrease of the same asset previously recognized as an expense, in which case it should be recognized in profit or loss. A decrease arising as a result of a revaluation should be recognized as an expense to the extent that it exceeds any amount previously credited to the “revaluation surplus” relating to the same asset. |
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Treatment of revaluation reserve |
When a revalued asset is disposed of, any “revaluation surplus” may be transferred directly to “retained earnings”, or it may be left in “equity” under the heading “revaluation surplus”. The transfer to “retained earnings” should not be made through profit or loss. |
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Impairment |
Property, Plant, and Equipment require impairment testing and, if necessary, recognition for Property, Plant, and Equipment. An item of Property, Plant, and Equipment shall not be carried at more than a recoverable amount. Recoverable amount is the higher of (1) the asset's value in use and (2) its fair value minus costs to sell. Any claim for compensation from third parties for impairment is included in profit or loss when the claim becomes receivable. |
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Disclosure |
Detailed disclosure requirements relating revaluation model are provided. |
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What must be done?
- The entity should ensure that the accounting team is well – trained for the upcoming application of IAS 1.
- Elect accounting policy for each class of assets – costs or revaluation model.
- The entity also needs to develop the appropriate method to measure the fair value of its assets (such as through professional valuation services) to meet the regulation of the standard.
- Develop the forecast of impact to cash-flow, the financial position under the application of the new standards.