MFRS 116: Property, Plant, and Equipment (PPE)

Overview

• MFRS 116 equivalent to IAS 16 at the international level.
• The presentation divided into parts A to E.
• Comprehensive step-by-step lecture with illustrative examples on accounting for PPE.

Lesson Outcomes

• Define property, plant, and equipment (PPE).
• Explain recognition criteria.
• Determine initial cost (covered in following video).
• Journal entries for initial cost.
• Presentation of financial statements.
• Explain accounting entries for subsequent cost.
• Presentation and disclosure in financial statements.
• Accounting treatment for subsequent measurement (cost model and revaluation model).
• Depreciation and accounting treatment for depreciation.
• Derecognition of PPE.
• Disclosure requirements of MFRS 116 on PPE.
• Prepare disclosure notes showing movement of PPE after an accounting period.

Examples of PPE

• Machinery
• Aeroplanes
• Buildings
• Heavy equipment (construction)
• Delivery trucks
• Land
• Office furniture and fixtures
• Office equipment

Objective of Financial Reporting

• Provide useful information to existing and potential investors and other creditors.
• Help in decision-making about providing resources to the entity.

Importance of Information about PPE to Investors

• Investors decide on buying shares based on PPE's ability to generate income or future economic benefits.
• Assess potential returns and the entity's use of PPE to generate more income.
• Evaluate the amount, timing, and uncertainty of future cash inflows.

Scope of MFRS 116

• Not included within the scope:
  • Non-current assets held for sale (MFRS 5)
  • Investment property
  • Biological assets (MFRS 141)
  • Exploration for and evaluation of mineral resources
  • Mineral rights and reserves

Definition of an Asset (Conceptual Framework)

• Present economic resource controlled by the entity as a result of past events.
• Resources under control used to produce economic benefits.
• Criteria for determining the existence of an asset:
  • Control
  • Right to economic resources
  • Result of past events
  • Potential to produce economic benefits

Example 1: Terra Cruz's Ferry

• Ferry purchased on 1st January 2017 for 1000 cash.
• Expected to operate for 20 years.
• Asset Classification:
  • Present Economic Resource: Ferry is controlled by the entity.
  • Past Event: Purchase on 1st January 2017.
  • Right to Use: Right to use ferry for generating future cash inflows.

Classification of PPE

• Definition of PPE (MFRS 116): Tangible items held for:
  • Use in production or supply of goods/services
  • Rental to others
  • Administrative purposes
  • Expected to be used for more than one period
  • Examples: Mutiara Cruise's ferry, machinery for furniture production

Recognition of PPE

• Recognition Criteria (MFRS 116):
  • Probable that future economic benefits will flow to the entity.
  • Cost can be measured reliably.

Example: Recognition of New Trailer

• FG Berhad (Auto Dealer):
  • New trailer used to deliver imported cars.
  • Generates income indirectly by enabling car sales.
  • Recognition Criteria:
    • Future economic benefits probable.
    • Cost of trailer can be reliably measured.

Summary and Conclusion

• Reviewed the definitions, recognition criteria, and examples of PPE.
• Recognition involves including PPE in the statement of financial position if criteria are met.

References

• Acknowledged resources and further reading materials.

Next Steps

• Proceed to Part B in the next session for further details.

Thank you for watching. Bye and Assalamualaikum.