The FRS 16 replaces the FRS16 (the version that was released in 2003), the INT FRS 6 (costs of modifying current software), the INT FRS 14 (property, plant, and equipment – compensating impairment or loss) and the INT FRS 23. This standard requires that every accountant in Singapore (regardless of in-house or accounting services providers) to apply the principles outlined in this standard to property, plant, and equipment. The property, plant or equipment should be used in the development or maintenance of biological assets and minerals rights and reserves including natural gas, oil, and more.
Note that the primary issue in accounting for plant, property, and equipment is how to recognize the assets, determine their carrying value, and how to recognize the depreciation and impairment losses associated with the assets. You should understand that FRS 16 does not apply to the following:
The plant, equipment, and property that is categorized as held for sale in agreement with the FRS 105 that clarifies non-current assets held for sale
- Agricultural activities-related biological assets apart from bearer plants
- The measurement, recognition, and measurement of evaluation assets
- Mineral reserves including natural gas, oil, and other similar products
The FRS16 prescribes the right procedure to measure costs associated with plant, property, and equipment. Note that you should choose either revaluation model or cost model as your business’s accounting policy and apply the policy to an entire category of plant, property, and equipment.
Cost model: after recognizing the item as an asset, you should subtract from its cost any accumulated depreciation and impairment losses.
Revaluation model: after recognizing the item as an asset, the property, plant or equipment whose fair value is measurable should be carried at the amount revalued. This will be perceived as its fair value as of the date of revaluation. You should deduct the subsequent depreciation and accumulated impairment losses.
This standard gives clear guidelines on how you should apply the cost model or the revaluation model as accounting policies. It also defines how you should recognize depreciation – the depreciation amount and period (Also see Accounting Period Assumption and Matching Principle: Understand their Relationship). It also prescribes the right depreciation method and its qualifications. Additionally, it explains what impairment is, how it should be compensated and when it should be recognized.
Remember, all the accounting double entries regarding property, plant and equipment should be disclosed in agreement with the FRS 16. Lastly, this standard discusses the transitional provisions regarding the financial reporting when it comes to plant, property, and equipment and you can certainly leverage on our accounting services to handle these complex tasks for you.