IAS 16: PROPERTY, PLANT AND

EQUIPMENT

Overview of the topic

• Presentation and disclosure

• Definition
• Recognition
- Criteria
- Initial costs
- Subsequent costs
• Measurement
• Derecognition

Presentation

1
Presentation

Disclosure

Definition

Property, plant and equipment are tangible assets

that:
− Are held for use in the production or supply of
goods or services, for rental to others, or for
administrative purposes, and
− Are expected to be used for more than one
period.

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Example 1 – Items of PPE
PPE
(✔ / 🗶 )
EX1.1 An entity owns a factory building in which its manufactures its
products.
EX1.2 An entity owns a building occupied by its administrative staff.
EX1.3 An entity holds a building to earn rentals under an operating
lease from a 3rd party that uses the building as a retail outlet for
its products.
EX1.4 An entity owns a fleet of motor vehicles. The vehicles are used
by the sales staff in the performance of their duties.

EX1.5 An entity owns a motor vehicle for the exclusive business and
private use of its chief financial officer.
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Example 1 – Items of PPE

PPE
(✔ / 🗶 )
EX1.1 An entity owns a factory building in which its manufactures its
✔
products.
EX1.2 An entity owns a building occupied by its administrative staff. ✔
EX1.3 An entity holds a building to earn rentals under an operating
lease from a 3rd party that uses the building as a retail outlet for 🗶
its products.
EX1.4 An entity owns a fleet of motor vehicles. The vehicles are used
by the sales staff in the performance of their duties. ✔

EX1.5 An entity owns a motor vehicle for the exclusive business and
private use of its chief financial officer. ✔

RECOGNITION CRITERIA:

− Probable that future economic benefits associated with

the item will flow to the entity AND

− Cost of the item can be reliably measured.

3
 Example 2: Recognition
Recognise
(✔ / 🗶 )
EX2.1 An entity that provides bus transport services to the local
community decided to expand their fleet of busses and
acquired a 40-seater bus for R3 million. The cost price of the
bus was set out as follows:
Engine: R1 200 000
Body: R 800 000
Interior fittings: R 300 000
Service: R 250 000
Various other moving and non-moving parts: R450 000
EX2.2 An entity repainted its factory building during the current
financial reporting period at a cost of R300 000.

10

Example 2: Recognition
Recognise
(✔ / 🗶 )
EX2.1 An entity that provides bus transport services to the local
community decided to expand their fleet of busses and
acquired a 40-seater bus for R3 million. The cost price of the
bus was set out as follows:
Engine: R1 200 000 ✔
Body: R 800 000
Interior fittings: R 300 000
Service: R 250 000
Various other moving and non-moving parts: R450 000
EX2.2 An entity repainted its factory building during the current
🗶
financial reporting period at a cost of R300 000.

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Items of PPE are initially recognised at cost.

The cost of an item of PPE is the cash price equivalent at the recognition date. If payment is deferred
beyond normal credit terms, the difference between the cash price equivalent and the total payment is
recognised as interest over the period of credit.

Cost comprises: Capitalisation of costs ceases

− Purchase price plus import duties and taxes (less refundable taxes). as soon as the asset is in the
− Any costs directly attributable to preparing the asset for its intended condition necessary for it to be
use. capable of operating in the
→ Cost of preparing the site manner intended by
→ Initial delivery and handling costs management.
→ Installation and assembly costs
→ Professional fees
→ Employee benefits relating directly to its construction or Subsequent costs are only
acquisition recognised if costs can be
→ Cost of testing, net of proceeds from selling items produced reliably measured and these
during testing are no longer capitalised. will lead to additional economic
− The initial estimate (PV) of the cost of dismantling, removing and benefits flowing to the entity.
restoring the site on which the asset is located.
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Recognition: Initial Costs

Components
ID significant components.

Safety and environmental costs

Entity is OBLIGATED to acquire such assets = cost is capitalised as
PPE.
Entity acquires assets VOLUNTARILY = cost is expensed.

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Example 2: Recognition
Recognise
(✔ / 🗶 )
EX2.3 An entity installed a new water filtering system in its factory at
a cost of R50 000, in order to avoid spillage of chemicals into
a nearby river as required by law.
EX2.4 An entity installed special filters at a total cost of R6 000, as
required by law, on a machine in order to prevent damage to
the environment. Assume the filters are not separately
identifiable components of the machine.

14

Example 2: Recognition
Recognise
(✔ / 🗶 )
EX2.3 An entity installed a new water filtering system in its factory at
✔
a cost of R50 000, in order to avoid spillage of chemicals into
a nearby river.
EX2.4 An entity installed special filters at a total cost of R6 000, as
required by law, on a machine in order to prevent damage to ✔
the environment. Assume the filters are not separately
identifiable components of the machine.

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5
Recognition: Subsequent Costs
Day-to-day servicing
Costs recognised in P/L as an expense when incurred.

Spare parts, stand-by equipment and servicing equipment

Recognise as PPE if they meet the definition of PPE (more than one
period) otherwise carry as inventory and recognised in P/L as consumed.

Replacement of parts
Derecognise old carrying amount, and capitalise new cost (generally as a
separate component / part).

Major inspections
Derecognise old carrying amount of previous inspection, and capitalise
new cost (generally as a separate component / part).
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Subsequent Expenditure Decision Tree

Example 2: Recognition
Recognise
( /  )
EX2.5 A private hospital has installed two identical back-up generators.
The first back-up generator provides electricity when the supply
from the national grid is interrupted. The second back-up generator
will be used in the unlikely event that the first back-up generator
fails when the supply from the national grid is interrupted.
EX2.6 A manufacturing entity purchased a machine (“Machine A”) for
R400 000 and spare parts for R30 000. These spare parts can be
used on any machine. In addition, a standby machine, which is
reserved for use only during Machine A’s down-time, was
purchased for R200 000. During 20X1, spare parts to the value of
R20 000 were used to repair various machines, including Machine
A.

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6
Example 2: Recognition
Recognise
( /  )
EX2.5 A private hospital has installed two identical back-up generators.
The first back-up generator provides electricity when the supply
from the national grid is interrupted. The second back-up generator 
will be used in the unlikely event that the first back-up generator
fails when the supply from the national grid is interrupted.
EX2.6 A manufacturing entity purchased a machine (“Machine A”) for
R400 000 and spare parts for R30 000. These spare parts can be

used on any machine. In addition, a standby machine, which is
reserved for use only during Machine A’s down-time, was
purchased for R200 000. During 20X1, spare parts to the value of

R20 000 were used to repair various machines, including Machine
A.

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Example 2: Recognition
Recognise
( /  )
EX2.7 An entity that manufactures agricultural chemicals is required to have
the protective lining of its chemical processing plant inspected for
corrosion at six-month intervals. If an inspection reveals damage to the
lining the entity is required to replace the lining immediately.
Experience has shown that linings require replacement, on average,
every four years. The entity depreciates linings on the straight-line
basis over their estimated four-year useful life to a nil residual value.
The other parts of the plant are depreciated on the straight-line basis
over their estimated 20-year useful life.

During the current reporting period and inspection revealed that a

three-year-old lining with a carrying amount of R100 000 was
damaged. The lining was immediately replaced at a cost of R420 000.

20

Example 2: Recognition
Recognise
( /  )
EX2.7 An entity that manufactures agricultural chemicals is required to have
the protective lining of its chemical processing plant inspected for
corrosion at six-month intervals. If an inspection reveals damage to the
lining the entity is required to replace the lining immediately.
Experience has shown that linings require replacement, on average,
every four years. The entity depreciates linings on the straight-line
basis over their estimated four-year useful life to a nil residual value. 
The other parts of the plant are depreciated on the straight-line basis
over their estimated 20-year useful life.

During the current reporting period and inspection revealed that a

three-year-old lining with a carrying amount of R100 000 was
damaged. The lining was immediately replaced at a cost of R420 000.

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7
Example 2: Recognition
Recognise
( /  )
EX2.8 An entity that operates an executive aviation service is
required to have its jet aircraft inspected for faults by the
national aviation authorities every two years. An inspection
was made halfway through the current financial reporting
period at a cost of R20 000.
EX2.9 An entity acquired a machine on 2 January 20X1 that needs
a major inspection every two years. The cost price of the
machine is R2 000 000, and it is estimated that the cost of a
major inspection will amount to R200 000.

22

Example 2: Recognition
Recognise
( /  )
EX2.8 An entity that operates an executive aviation service is
required to have its jet aircraft inspected for faults by the
national aviation authorities every two years. An inspection 
was made halfway through the current financial reporting
period at a cost of R20 000.
EX2.9 An entity acquired a machine on 2 January 20X1 that needs
a major inspection every two years. The cost price of the

machine is R2 000 000, and it is estimated that the cost of a
major inspection will amount to R200 000.

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Example 3 – Measurement at initial recognition

On 1 January 20X1 an entity purchased an item of equipment for
R600 000 (including R50 000 refundable purchase taxes). The
entity incurred the following additional costs with regards to the
new equipment:
 R20 000 was paid to transport the equipment to the site.

 R100 000 was paid to install the equipment at the site.

 The entity is required to dismantle the equipment and restore

the land upon which the factory is build at the end of the
equipment’s 10-year useful life. The present value of the cost
of dismantling the equipment and restoring the environment is
estimated to be R100 000.
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8
Example 3 – Measurement at initial recognition
…continued
 The entity’s engineer incurred R55 000 and R65 000 on
materials and labour respectively in modifying the equipment
so that it can produce the products manufactured by the entity.
Depreciation of plant and equipment used to perform these
modifications was calculated as R15 000.
 The entity paid R10 000 in terms of training production staff in
how to operate the new item of equipment.

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Example 3 – Measurement at initial recognition

…continued
 In February 20X1 the entity’s production team tested the
equipment and the engineering team made further
modifications necessary to get the equipment to function as
intended by management. The following costs were incurred in
the testing phase:
→ Material, net of R3 000 recovered from the sale of the scrapped
output: R21 000.
→ Labour: R11 000
→ Depreciation of plant and equipment used to perform the testing: R5
000

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Example 3 – Measurement at initial recognition

…continued
The equipment was ready for use on 1 March 20X1. However,
because of low initial order levels the entity incurred a loss of
R23 000 on operating the equipment during March. Thereafter
the equipment operated profitably.

REQUIRED:
What is the cost of the equipment at initial recognition?

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9
Example 3 – Suggested Solution
Description Calculation / Reason Amount
Purchase price R600 000 purchase price less R50 000 refundable 550 000
purchase taxes
Transport costs Directly attributable expenditure 20 000
Installation costs Directly attributable expenditure 100 000
Environmental restoration costs The obligation to dismantle and restore the environment 100 000
arose from the installation of the equipment.
Modification costs R55 000 material + R65 000 labour + R15 000 135 000
depreciation
Training costs Recognised as expenses in profit / loss. The equipment 0
was capable of operating in the manner intended by
management without incurring the training costs.

Cost of testing Not capitalised 0

Operating loss Recognise as expenses in profit / loss 0

Cost of equipment 905 000

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Example 4 – Measurement at initial recognition

An entity acquired a plant for R2 000 000 on two-years’ interest-
free credit (being longer than normal credit terms).
An appropriate discount rate is 10% per annum.

REQUIRED:
What is the cost of the asset at initial recognition?

PRESENT VALUE FORMULA

PV = FV 1
(1 + r) ⁿ

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Example 4 – Suggested Solution

• The cost of the plant is the present value of the future payment.
• Calculation:
FV: R2 000 000
n: 2
i: 10%
Calculate PV
= R1 652 893 (the cost of the plant)
• Note: The unwinding of the discount results in interest expense recognised in profit or loss
respectively of R165 289 and R181 818 in the first and second 12-month period after the sale.
Furthermore, two years after the sale, the liability of R2 000 000 (R1 652 893 + R165 289 +
R181 818) is derecognised upon settlement of the debt.

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10
 Subsequent measurement

Accumulated impairment
Cost Accumulated depreciation
losses

In measuring depreciation, we simply EXPENSE: Impairment of assets will

 The portion of the cost that will be lost due to usage be covered in detail in
(called its depreciable amount (cost – residual value)) IAS 36.
 Over its useful life
 Using a depreciation method that reflects the pattern in
which we expect to use the asset.

The residual value, the useful life and the depreciation

method of an asset are reviewed annually at reporting date.

Changes in residual value, depreciation method and useful

life are changes in estimates and are accounted for
prospectively in accordance with IAS8.

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Depreciation

• Definition:
Depreciation is the systematic allocation of the depreciable amount of an
asset over its useful life.

• Depreciation is the expense that is recognised in profit or loss as a result

of using PPE (portion of the cost that is lost due to usage).

• Depreciation of an asset should begin when the asset is available for use.

• Depreciation should continue if an asset becomes temporarily idle or

retired from active use until the asset is fully depreciation or sold.
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Definitions
The DEPRECIABLE AMOUNT is the cost of an asset, or other amount substituted for cost,
less its residual value.

The RESIDUAL VALUE of an asset is the estimated amount that the entity would currently
obtain from the disposal of the asset, after deducting the estimated costs of disposal, if the
asset were already of the age and in the condition expected at the end of its useful life.

USEFUL LIFE is defined as:

The period over which an asset is expected to be available for use by an entity; OR
The number of production or similar units expected to be obtained from the asset by an
entity.

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Example 5 – Subsequent measurement: Depreciation
Calculation of the expected useful life of an item of PPE

Useful life
5.1 As part of their remuneration package an entity provides each senior
manager with the private use of a luxury motor vehicle of the
manager’s choice. The executive motor vehicles are replaced every
two years irrespective of usage.
The entity sells and replaces its luxury motor vehicle fleet every two
years when the vehicles are expected to be economically usable by
one or more users for at least another three years.
5.2 An entity does not service its equipment regularly. With regular
servicing the equipment would be available for use for five years.
However, the expected equipment servicing pattern is expected to
render the equipment unusable in three years.

34

Example 5 – Subsequent measurement: Depreciation

Useful life
5.3 An entity’s equipment used to manufacture a patented drug is
expected to be capable of producing the drug for ten years. However,
the entity expects to stop manufacturing the drug and scrap the
equipment after five years of production when its patent expires and
low cost generic drugs are expected to render the entity’s
manufacturing of this drug unprofitable.

35

Example 5 – Subsequent measurement: Depreciation

Calculation of the expected useful life of an item of PPE

Useful life
5.1 As part of their remuneration package an entity provides each senior 2 years
manager with the private use of a luxury motor vehicle of the
manager’s choice. The executive motor vehicles are replaced every
two years irrespective of usage.
The entity sells and replaces its luxury motor vehicle fleet every two
years when the vehicles are expected to be economically usable by
one or more users for at least another three years.
5.2 An entity does not service its equipment regularly. With regular 3 years
servicing the equipment would be available for use for five years.
However, the expected equipment servicing pattern is expected to
render the equipment unusable in three years.

36

12
Example 5 – Subsequent measurement: Depreciation
Useful life
5.3 An entity’s equipment used to manufacture a patented drug is 5 years
expected to be capable of producing the drug for ten years. However,
the entity expects to stop manufacturing the drug and scrap the
equipment after five years of production when its patent expires and
low cost generic drugs are expected to render the entity’s
manufacturing of this drug unprofitable.

37

Depreciation Methods
Straight-line method (usually adopted when the income produced by the asset (or part of the
asset) is a function of time rather than of usage, and where the repair and maintenance
charges as well as the benefits are fairly constant)
Depreciation = Depreciable amount / Useful life

Diminishing balance method (usually adopted when there is uncertainty about the amount of
income that will be derived from the asset or when the effectiveness of the asset is expected
to decline gradually)
Depreciation = Carrying amount X Depreciation rate for diminishing balance (%)

Units of production method (depreciation is based on the expected use or output of the
assets)
Depreciation = Depreciable amount X (Actual output / Total estimated output over the useful
life)
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Example 6 – Subsequent measurement: Depreciation

Determination of the most appropriate method of depreciating an item of
PPE
Depreciation
method
6.1 An entity uses an item of machinery in the production of hazardous
chemicals. Industry regulations limit the output of the machine to
1,000,000 litres, after which the machine must be decommissioned,
decontaminated and recycled.

The entity projects that the output of the machine will reach
1,000,000 litres within four years of its acquisition, at which time the
machine will be decommissioned.
6.2 As part of their remuneration package an entity provides each
senior manager with the private use of a luxury motor vehicle of the
manager’s choice. The executive motor vehicles are replaced every
two years irrespective of use.
39

13
Example 6 – Subsequent measurement: Depreciation
Determination of the most appropriate method of depreciating an item of
PPE
Depreciation
method
6.1 An entity uses an item of machinery in the production of hazardous Unit of
chemicals. Industry regulations limit the output of the machine to production
1,000,000 litres, after which the machine must be decommissioned, method
decontaminated and recycled.

The entity projects that the output of the machine will reach
1,000,000 litres within four years of its acquisition, at which time the
machine will be decommissioned.
6.2 As part of their remuneration package an entity provides each Straight-line
senior manager with the private use of a luxury motor vehicle of the method
manager’s choice. The executive motor vehicles are replaced every
two years irrespective of use.
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Example 7 – Commencing and ceasing depreciation

On 1 January 20X1 an entity acquired a machine for R3 million. Management
estimated the useful life of the machine as 20 years and its residual value as nil.
Furthermore, management believe that the straight-line method reflects the
pattern in which it expects to consume the machine’s future economic benefits.
The machine was installed and ready for use as intended by management by 1
February 20X1. However, because of unexpected delays in the retraining of
staff to operate the machine, production began on 1 March 20X1.
From 1 June 20X3 to 30 July 20X3 the machine was idle because the
employees that operate the machine had embarked on industry-wide industrial
action in the form of a stay away.
On 2 February 20X6, the entity disposed of the machine and the risks and
rewards of ownership of the machine was transferred from the entity to the
buyer on this date.

41

Example 7 – Commencing and ceasing depreciation

REQUIRED:
1. When must the entity start to depreciate the machine?
2. When must the entity cease depreciating the machine?
3. Must the entity temporarily suspend depreciation of the machine
between 1 June and 30 July 20X3?

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14
Example 7 – Commencing and ceasing depreciation
When must the entity start to depreciate the machine?
The entity must start depreciating the machine on 1 February 20X1, when it was installed in
the entity’s factory and in a condition necessary for it to be capable of operating in the
manner intended by management.

When must the entity cease depreciating the machine?

The entity must cease depreciating the machine when the machine is de-recognised (i.e.
when it is disposed of on 2 February 20X6).

Must the entity temporarily suspend depreciation of the machine between 1 June and
30 July 20X3?
No, the entity must not temporarily suspend depreciating the machine when it is idle.
Depreciation of an asset ceases only when the asset is de-recognised or it is fully
depreciated. However, under usage methods of depreciation (e.g. unit of production
method) the depreciation charge can be nil while there is no production.
43

Example 8 – Depreciation
An entity bought an asset for R310 000 on 1 January 20X1. The asset was
available for use on 1 March 20X1 and brought into use on 1 April 20X1.
The following additional information is available:
 Residual value: R10 000
 Useful life: 5 years
 The asset is expected to be able to produce 20 000 units in its lifetime.
 Production in the year ended 28 February 20X2 was 8 000 units and in
20X3 was 6 000 units.

REQUIRED:
Using the allowed depreciation methods, calculate the depreciation for the
20X2 and 20X3 financial reporting periods.

44

Example 8 – Depreciation

Unit of production method:

YEAR CALCULATION AMOUNT
20X2 (R310 000 – R10 000) X 8 000 / 20 000 120 000
20X3 (R310 000 – R10 000) X 6 000 / 20 000 90 000

Straight-line method:
Depreciation = (R310 000 – R10 000) / 5 x
= R60 000 annually

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15
Example 8 – Depreciation

Diminishing balance method:

[Assume a depreciation rate of 25%]
Depreciation
20X2 R310 000 X 25% 77 500
20X3 (R310 000 – R77 500) X 25% 58 125

46

Example 9 – Depreciation of major components

On 1 January 20X1 an entity acquired an item of heavy machinery for
R 600 000. The machine is made up of three components of equal value:
 Fixed parts (management estimates fixed parts have a 25-year useful life with no
residual value).
 Moving parts (management estimates moving parts have a 5-year useful life with no
residual value).
 Foundation (management estimates the foundation has a 25-year useful life with no
residual value).
Furthermore, management judges that the straight-line method reflects the pattern in which
the entity expects to consume the future economic benefits of all components of the
machine.
REQUIRED:
How would the entity calculate the depreciation on the item of heavy machinery?
47

Example 9 – Depreciation of major components

The entity must allocate the R600 000 initially recognised to the three
components of the machine. However, fixed parts and the foundation may
be grouped together in determining the depreciation charge as these
components have the same useful life and both must be depreciated on the
straight-line method. One-third of the cost (R200 000) will be allocated to the
moving parts and two thirds of the cost (R400 000) will be allocated to the
combined foundation and fixed parts.
Annual
depreciation
Moving parts R200 000 / 5 40 000
Fixed parts and (R200 000 + R200 000) / 25 16 000
foundation
56 000
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Example 10 – Depreciation charge allocated to the cost
of an asset
On 1 January 20X1 an entity acquired a machine for R1 200 000.
Management estimates the machine has a 10-year useful life (measured
from the date of acquisition) and a nil residual value. Furthermore,
management judges that the straight-line method reflects the pattern in
which the entity expects to consume the machine’s future economic
benefits.
In 20X1 the machine was used to produce inventory for eight months.
Thereafter, the machine was used to manufacture components of a new
item of plant being constructed by the entity. The new plant will be used by
the entity to manufacture a new product line.

REQUIRED:
How will the entity account for depreciation?
49

Example 10 – Depreciation charge allocated to the cost

of an asset

Depreciation for the year is R120 000 (R1 200 000 / 10).

In 20X1 the entity must allocate R80 000 (R120 000 X 8/12) to the
cost of inventories manufactured in 20X1 and R40 000
(R120 000 X 4/12) to the cost of the new plant undergoing
construction.

50

DERECOGNITION of items of property, plant and equipment

When:
 On disposal.
 No future economic benefits are expected.

Recognise profit / loss on disposal

= NET disposal proceeds – carrying amount

COMPENSATION FOR LOSSES

Impairments or losses of items of PPE, related claims for or payments of compensation

from third parties and any subsequent purchase or construction of replacement assets are
separate economic events and are accounted for separately

51

17
Example 14 – Derecognition

On 1 November 20X5 an entity sold an owner-occupied building

with a carrying amount of R2 000 000 for R3 500 000. The estate
agent retained 10% of the proceeds from the sale as a selling
commission. Legal fees in respect of the sale were R10 000.

REQUIRED:
How should the entity account for the disposal of the owner-
occupied building?

52

Example 14 – Derecognition

On 1 November 20X5 the entity must recognise a gain on the disposal of the
building of R1 140 000 in profit / loss.

Net disposal proceeds = R3 500 000 selling price

– R350 000 agent’s commission
– R10 000 legal fees
= R3 140 000 net disposal proceeds
Gain = R3 140 000 net disposal proceeds
– R2 000 000 carrying amount
= R1 140 000 gain on disposal of building

53

Example 15 – Derecognition

An entity entered into the following two transactions relating to items of PPE
during the year ended 31 December 20X5:
1. Asset A, with a carrying amount of R210 000 on 1 January 20X5 and an
original cost of R400 000, was sold for R220 000 on 30 June 20X5. The
payment will only be received on 30 June 20X6.
2. Asset B, with a carrying amount of R480 000 on 1 January 20X5 and an
original cost of R800 000, was withdrawn from use on 30 September
20X5 after environmental inspectors certified that the asset can no
longer be used. The asset cannot be altered to secure future use which
makes the sale thereof unlikely. The scrap value of the asset is
negligible.
Both these assets are depreciated at 20% per annum on a straight-line
basis, and the current interest rate on asset financing is 10% per annum.
REQUIRED:
Calculate the profit / loss on disposal of these assets. 54

18
Example 15 – Derecognition

Asset A: R
Proceeds on disposal 220 000
Carrying amount at disposal (170 000)
[R210 000 – (R400 000 X 20% X 6/12)]

Profit on sale of asset A 50 000

55

Example 15 – Derecognition

Asset B: R
Proceeds on disposal 0
Carrying amount at disposal (360 000)
[R480 000 – (R800 000 X 20% X 9/12)]

Loss on scrapping of asset B (360 000)

56

Example 16 – Compensation for losses

On 30 September 20X6 a fire destroyed an item of machinery when the

carrying amount of the item was R500 000 (cost R600 000 less R100 000
accumulated depreciation). The entity immediately registered a claim of
R700 000 for the replacement cost of the machine with the insurance
company. Consequently the insurance company paid out R700 000 in cash
on 30 November 20X6.
On 15 December the entity utilised the R700 000 to acquire a replacement
machine, which was immediately installed and ready for use.

REQUIRED:
How must the entity account for its machinery for the year ended 31
December 20X6?

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 Example 16 – Compensation for losses
Debit Credit
30/09/20X6 Loss on write off of asset (P/L) 600 000
Machine (SFP) 600 000
[To record the de-recognition of a machine destroyed in a fire.]

Accumulated depreciation (SFP) 100 000

Loss on write off of asset (P/L) 100 000
[To record the de-recognition of a machine destroyed in a fire.]

15/11/20X6 Receivable (SFP) 700 000

Compensation income from insurance (P/L) 700 000
[To record the compensation to be received from the insurance company in
respect of a machine that was destroyed in a fire.]

30/11/20X6 Bank (SFP) 700 000

Receivable (SFP) 700 000
[To record receipt of the compensation from the insurance company in
respect of a machine destroyed in a fire.]

15/12/20X6 Machine (SFP) 700 000

Bank (SFP) 700 000
58
[To record the acquisition of the new machine.]

Summary of Presentation

Statement of Financial Position

Initial cost
Add: Subsequent cost
Less: Carrying value of assets disposed
Less: Accumulated depreciation
Less: Impairment loss
= Carrying value presented on SFP

Summary of Presentation

Statement of Profit or Loss

Depreciation for the year (expense)

Profit or loss on disposal of asset (income or expense)
Compensation income for insurance (income)
Impairment loss (expense)
Assets written off due to theft or damage (expense)

20