1. Initial Recognition Criteria
An item of Property, Plant, and Equipment (PPE) is recognized as an asset if, and only if:
  • It is probable that future economic benefits associated with the item will flow to the entity.
  • The cost of the item can be measured reliably.

Initial Measurement Components
PPE must initially be measured at cost. This includes its purchase price (including import duties and non-refundable purchase taxes), any costs directly attributable to bringing the asset to the location and condition necessary for it to operate, and the initial estimate of the costs of dismantling and removing the item or restoring the site on which it is located.
2. Subsequent Measurement Models
IAS 16 allows entities a choice between two distinct operational models for an entire class of PPE:
The Cost Model
The asset is carried at its historical cost less any accumulated depreciation and any accumulated impairment losses.
The Revaluation Model
The asset is carried at a revalued amount, which is its fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations must be performed with sufficient regularity to ensure the carrying amount does not differ materially from fair value.
┌───────────────────────────────────────────────────────────────────────────┐
│                       REVALUATION SURPLUS ACCOUNTING                      │
├─────────────────────────────────────┬─────────────────────────────────────┤
│         REVALUATION INCREASE        │        REVALUATION DECREASE         │
├─────────────────────────────────────┼─────────────────────────────────────┤
│ • Credited directly to Equity under │ • Recognized directly as an expense │
│   "Other Comprehensive Income" (OCI)│   in Profit or Loss                 │
│ • Exception: Reverses a prior       │ • Exception: Debited to OCI to the  │
│   expense for the same asset        │   extent of any prior credit balance│
└─────────────────────────────────────┴─────────────────────────────────────┘

3. Depreciation Frameworks
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. IAS 16 requires that the depreciation method used reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity (e.g., Straight-line, Reducing-balance, or Units-of-production methods). The residual value and the useful life of an asset must be reviewed at least at each financial year-end.
 
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