Introduction

The objective of the International Accounting Standard
16 (IAS 16) is to illustrate the measurement of Property, Plant and Equipment.
Additionally, Property, Plant and Equipment mention the tangible assets as the
accomplish for use in operation in the long-run. The categories in the
Property, Plant and Equipment are different with the current assets due to the
complexity of converted the fixed assets to cash. These assets include
property, furniture, motor vehicle etc. The fundamental issues often appear in
the process of computing the items of Property, Plant and Equipment. For
example, the determination of asset’s useful life and the method of
depreciation. The increasing needs for the company to implement on this method,
therefore, it is vital to aware of the revaluation approach (Sarah E Monday,
2009).

Defining
the Property, Plant and machinery

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Property, plant and
equipment (PPE) is observed when the cost of an asset can be reliably measured,
and it is probable that the entity will obtain future economic benefits from
the asset. PPE is measured initially at cost. Additionally,  cost includes the fair value of the
consideration given to acquire the asset such as net of discounts, rebate and
any directly attributable cost of bringing the asset to working condition for
its intended use (inclusive of import duties and non-refundable purchase
taxes). Directly attributable costs include the cost of site preparation,
delivery, installation costs, relevant professional fees and the estimated cost
of dismantling and removing the asset and restoring the site (to the extent
that such a cost is recognised as a provision). Classes of PPE are carried at
historical cost less accumulated depreciation and any accumulated impairment
losses (the cost model), or at a revalued amount less any accumulated
depreciation and subsequent accumulated impairment losses (the revaluation
model). The depreciable amount of PPE (being the gross carrying value less the
estimated residual value) is depreciated on a systematic basis over its useful
life. Subsequent expenditure relating to an item of PPE is capitalised if it
meets the recognition criteria. PPE may comprise parts with different useful
lives. Depreciation is calculated based on each individual part’s life. In case
of replacement of one part, the new part is capitalised to the extent that it
meets the recognition criteria of an asset, and the carrying amount of the
parts replaced is derecognised. The cost of a major inspection or overhaul of
an item occurring at regular intervals over the useful life of the item is
capitalised to the extent that it meets the recognition criteria of an asset.
The carrying amounts of the parts replaced are derecognised (IFRS, 2009).

Determination
of depreciation

Depreciation are the different value between the
market and the substitute (ANEVAR, 2001). The depreciation can be review in two
perspectives which are the reversible depreciation and the irreversible depreciation.
If the assets are to be subjected as irreversible depreciation, the non-current
assets recover their value immediately through amortization (Epuran M., B?b?i?? B., Imbrescu C., 2004). Amortization,
a process used to claim the amortizable value of the assets during the useful
time of the assets (Mati? D., Pop A., 2010). The international accounting
standards describe the amortization as the systematic allotment of an asset’s
amortizable value during its useful life period (IFRS, 2009).

Depreciation perspective in Australia

According to IAS 16, the allowed methods of
depreciation are straight-line, double declining balance and
units of production (IASB 2010, A452). For example, In Australia, depreciation
was regulated by the former standard AASB 1021 Depreciation under local
practice. They are three methods were offered: straight-line, reducing balance
and a method of overall output or service which the asset is expected to yield
to the entity. The predicted production units, running times or the distances
would be some items need to be concerned. In this context, the straight-line method
is a common practice to be used (Heazlewood 2003). In these studies, the
Australian seem to more likely using the straight-line method due to the
reflection of local accounting practice beyond the IFRS. Additionally, the
resources-based entities use units of production method were also as well as
straight-line method.  

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