Ind AS 16 for your fixed asset register

Ind AS 16 Property, Plant and Equipment applies to companies covered by the Companies (Indian Accounting Standards) Rules, 2015: broadly, listed companies, unlisted companies above the prescribed net-worth thresholds, and their holding, subsidiary, joint venture and associate companies. Other companies follow Accounting Standard (AS) 10 Property, Plant and Equipment, revised in 2016, which is compared at the end of this guide.

An item of property, plant and equipment (PPE) is a tangible item held for use in production or supply, for rental or for administrative purposes, and expected to be used for more than one period. It is recognised as an asset only when (para 7):

• it is probable that future economic benefits associated with it will flow to the entity; and
• its cost can be measured reliably.

Spare parts, stand-by equipment and servicing equipment are PPE when they meet the definition; otherwise they are inventory. Ind AS 16 does not set a value below which items are expensed. A low-value threshold is an accounting policy based on materiality, which should be documented and applied consistently.

An item is measured at cost on initial recognition (para 15). Cost has three elements (para 16): the purchase price, including import duties and non-refundable purchase taxes, after trade discounts and rebates; costs directly attributable to bringing the asset to the location and condition needed for it to operate as management intends; and the initial estimate of dismantling, removal and site-restoration costs where there is an obligation.

Following an amendment effective from 1 April 2022, proceeds from selling items produced while the asset is being brought to its working condition (for example, trial-run output) are recognised in profit or loss, together with their cost, rather than deducted from the cost of the asset. The register should therefore keep trial-run costs and trial-run sales apart in the CWIP project.

Capitalisation happens when the asset is available for use, which is also the date depreciation starts (para 55). An asset that is bought but not installed stays in capital work-in-progress (CWIP) and is not depreciated.

Each part of an item of PPE with a cost that is significant in relation to the total cost of the item is depreciated separately (para 43). Parts with the same useful life and method may be grouped. Schedule II to the Companies Act, 2013 also requires a separate useful life for a significant part whose life differs from that of the rest of the asset.

Neither Ind AS 16 nor Schedule II defines 'significant'. Companies set a threshold as policy, often a percentage of the asset's cost, and apply it consistently. When a component is replaced, the carrying amount of the old component is derecognised and the cost of the new one is capitalised (para 70), so the register must hold components as separate records linked to the parent asset.

The depreciable amount (cost less residual value) is allocated on a systematic basis over the useful life. Depreciation begins when the asset is available for use and stops at the earlier of classification as held for sale and derecognition (para 55). It does not stop merely because an asset is idle, unless it is fully depreciated or a usage-based method gives nil.

Two reviews are required at least at each financial year end:

• useful life and residual value (para 51);
• depreciation method, so that it still reflects the expected pattern of consumption of benefits (para 61).

A change from either review is a change in accounting estimate under Ind AS 8. It is applied prospectively: the remaining carrying amount is spread over the revised remaining life, and earlier years are not restated.

For a register, this means every review should leave a dated record of the old and new estimates and the reason, rather than an edit to the asset master that silently changes history.

After recognition, an entity chooses the cost model or the revaluation model as its policy and applies it to an entire class of PPE (paras 29 and 36). Land, buildings, and plant and machinery are typical classes.

Under the revaluation model, the asset is carried at fair value at the date of revaluation, less later depreciation and impairment. Valuations must be regular enough that the carrying amount does not differ materially from fair value. An increase goes to other comprehensive income and the revaluation surplus, unless it reverses an earlier decrease recognised in profit or loss; a decrease goes to profit or loss after using up any surplus for that asset. The surplus may be transferred to retained earnings as the asset is used or on derecognition, but not through profit or loss.

For Indian companies, Schedule III asks whether a revaluation was based on a registered valuer's report, and CARO 2020 clause 3(i)(d) asks the auditor to report revaluations and the change where it is 10% or more of the net carrying value of a class. See CARO 2020 and physical verification.

Three other standards change how an item in the register is measured or presented:

• Ind AS 36 Impairment of Assets. At each reporting date, look for indications of impairment. Where there are any, the recoverable amount is estimated, often for a cash-generating unit rather than one asset. An impairment loss reduces the carrying amount, and depreciation after that is based on the reduced amount.
• Ind AS 105 Non-current Assets Held for Sale. An asset classified as held for sale is no longer depreciated, is measured at the lower of its carrying amount and fair value less costs to sell, and is presented separately.
• Ind AS 116 Leases. A lessee recognises a right-of-use asset, which is depreciated, generally over the shorter of the lease term and the asset's useful life unless ownership is expected to transfer. Division II of Schedule III presents right-of-use assets as a separate line item.

These are pointers only. Each standard has its own measurement rules, and the judgments involved (indicators, cash-generating units, the held-for-sale criteria, lease terms) should be agreed with your auditor.

An item is derecognised on disposal, or when no future economic benefits are expected from its use or disposal (para 67). The gain or loss is the difference between the net disposal proceeds and the carrying amount, and is recognised in profit or loss; a gain is not classified as revenue (para 68). The date of disposal is the date the recipient obtains control.

Depreciate up to the disposal date before working out the gain or loss, and remove both the gross cost and the accumulated depreciation. Physical verification shortages that are written off are also derecognitions and follow the same entry.

A register that only holds cost, date and a rate cannot support the judgments above. These are the data points worth holding per asset or component:

If you are building or cleaning a register, see our fixed asset register format guide for the core columns.

AS 10 (revised 2016) brought Indian GAAP close to Ind AS 16 on the points a register deals with every day: component accounting, annual review of life, residual value and method, and prospective treatment of changes, including a change of method.