Financial Reporting Standard 16: Property, Plant and Equipment

The Financial Reporting Standard 16 replaces the INTFRS 6 (expenses of changing current software application), the FRS16 (2003 version), the INT FRS 14 (property, plant and equipment – compensating loss or impairment) and the INT FRS 23. Every business in Malaysia has to implement this standard in property, plant and equipment. This is not a difficult standard but a lot of minor details to take care so an alternative to that is to engage an accounting firm in Johor Bahru to take care for you.

The main problem in the accounting for property, plant and equipment is to identify the assets, recognise their carrying value, and to recognise the impairment losses and depreciation related to the assets. It would be best if you ensure your accountant (Also see Four Typical Myths About an Accountant) comprehended that the FRS 16 is not used in the following:

• The recognition and measurement of the evaluation assets
• Agricultural activities-related biological assets besides bearer plants
• Mineral reserves consisting of oil and natural gas.

The FRS 16 suggests that the ideal procedure to determine expenses connected with property, plant and equipment. You need to pick either the cost model as your business’s accounting policy or revaluation model and use the policy to the whole category of property, plant and equipment.

Revaluation model: after acknowledging the item as assets, the property, plant and equipment which have measurable fair value need to be carried at the quantity revalued. You have to subtract the accumulated impairment losses and the subsequent depreciation (Also see Accounting tasks to consider before the year ends).

Cost model: after recognising the object as assets, you ought to deduct from its expense any impairment losses and accumulated impairment losses as a contra account.

This standard provides clear and precise guidelines on steps to apply the revaluation model as accounting policies or the cost model (Also see 5 Ways to Take Control of Bookkeeping Without Wasting Time). It also specifies how to properly accounts for depreciation, which is the depreciation figure and estimated useful life. It prescribes the appropriate depreciation method and discusses how to compensate impairment, and when to recognise it.

All accounting entries relating to property, plant and equipment must be revealed in the agreement with the FRS 16. This standard talks about the transitional arrangements of financial reporting regarding property, plant and equipment.