Overview
Standards and Interpretations. [IAS 1.3]
IAS 1 Presentation of Financial Statements sets out
the overall requirements for financial statements,
including how they should be structured, the
minimum requirements for their content and
overriding concepts such as going concern, the accrual
basis of accounting and the current/non-current
distinction. The standard requires a complete set of
financial statements to comprise a statement of
financial position, a statement of profit or loss and
other comprehensive income, a statement of changes
in equity and a statement of cash flows.
IAS 1 was reissued in September 2007 and applies to
annual periods beginning on or after 1 January 2009.
Related Interpretations
 IAS 1 (2003) superseded SIC-18 Consistency
- Alternative Methods
 IFRIC 17 Distributions of Non-cash Assets to
Owners
 SIC-27 Evaluating the Substance of
Transactions in the Legal Form of a Lease
 SIC-29 Disclosure - Service Concession
Arrangements
Amendments under consideration
 IAS 1 — Disclosures about going concern
 IAS 1 — Classification of liabilities
 Disclosure initiative — Principles of
disclosure (research project)
 Disclosure initiative — Materiality (research
project)
Summary of IAS 1
Objective of IAS 1
The objective of IAS 1 (2007) is to prescribe the basis
for presentation of general purpose financial
statements, to ensure comparability both with the
entity's financial statements of previous periods and
with the financial statements of other entities. IAS 1
sets out the overall requirements for the presentation
of financial statements, guidelines for their structure
and minimum requirements for their content. [IAS
1.1] Standards for recognising, measuring, and
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disclosing specific transactions are addressed in other
Scope
IAS 1 applies to all general purpose financial
statements that are prepared and presented in
accordance with International Financial Reporting
Standards (IFRSs). [IAS 1.2]
General purpose financial statements are those
intended to serve users who are not in a position to
require financial reports tailored to their particular
information needs. [IAS 1.7]
Objective of financial statements
The objective of general purpose financial statements
is to provide information about the financial position,
financial performance, and cash flows of an entity that
is useful to a wide range of users in making economic
decisions. To meet that objective, financial statements
provide information about an entity's: [IAS 1.9]
 assets
 liabilities
 equity
 income and expenses, including gains and
losses
 contributions by and distributions to owners
(in their capacity as owners)
 cash flows.
That information, along with other information in the
notes, assists users of financial statements in
predicting the entity's future cash flows and, in
particular, their timing and certainty.
Components of financial statements
A complete set of financial statements includes: [IAS
1.10]
 a statement of financial position (balance
sheet) at the end of the period
 a statement of profit or loss and other
comprehensive income for the period
(presented as a single statement, or by
presenting the profit or loss section in a
separate statement of profit or loss,
immediately followed by a statement
 presenting comprehensive income beginning
with profit or loss)
 a statement of changes in equity for the period
 a statement of cash flows for the period
 notes, comprising a summary of significant
accounting policies and other explanatory
notes
 comparative information prescribed by the
standard.
An entity may use titles for the statements other than
those stated above. All financial statements are
required to be presented with equal prominence. [IAS
1.10]
When an entity applies an accounting policy
retrospectively or makes a retrospective restatement
of items in its financial statements, or when it
reclassifies items in its financial statements, it must
also present a statement of financial position (balance
sheet) as at the beginning of the earliest comparative
period.
Reports that are presented outside of the financial
statements – including financial reviews by
management, environmental reports, and value added
statements – are outside the scope of IFRSs. [IAS
1.14]
Fair presentation and compliance with IFRSs
The financial statements must "present fairly" the
financial position, financial performance and cash
flows of an entity. Fair presentation requires the
faithful representation of the effects of transactions,
other events, and conditions in accordance with the
definitions and recognition criteria for assets,
liabilities, income and expenses set out in the
Framework. The application of IFRSs, with additional
disclosure when necessary, is presumed to result in
financial statements that achieve a fair presentation.
[IAS 1.15]
IAS 1 requires an entity whose financial statements
comply with IFRSs to make an explicit and unreserved
statement of such compliance in the notes. Financial
statements cannot be described as complying with
IFRSs unless they comply with all the requirements of
IFRSs (which includes International Financial
Reporting Standards, International Accounting
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Standards, IFRIC Interpretations and SIC
Interpretations). [IAS 1.16]
Inappropriate accounting policies are not rectified
either by disclosure of the accounting policies used or
by notes or explanatory material. [IAS 1.18]
IAS 1 acknowledges that, in extremely rare
circumstances, management may conclude that
compliance with an IFRS requirement would be so
misleading that it would conflict with the objective of
financial statements set out in the Framework. In such
a case, the entity is required to depart from the IFRS
requirement, with detailed disclosure of the nature,
reasons, and impact of the departure. [IAS 1.19-21]
Going concern
The Conceptual Framework notes that financial
statements are normally prepared assuming the entity
is a going concern and will continue in operation for
the foreseeable future. [Conceptual Framework,
paragraph 4.1]
IAS 1 requires management to make an assessment of
an entity's ability to continue as a going concern. If
management has significant concerns about the
entity's ability to continue as a going concern, the
uncertainties must be disclosed. If management
concludes that the entity is not a going concern, the
financial statements should not be prepared on a going
concern basis, in which case IAS 1 requires a series of
disclosures. [IAS 1.25]
Accrual basis of accounting
IAS 1 requires that an entity prepare its financial
statements, except for cash flow information, using
the accrual basis of accounting. [IAS 1.27]
Consistency of presentation
The presentation and classification of items in the
financial statements shall be retained from one period
to the next unless a change is justified either by a
change in circumstances or a requirement of a new
IFRS. [IAS 1.45]
Materiality and aggregation
Each material class of similar items must be presented
separately in the financial statements. Dissimilar items
may be aggregated only if the are individually
immaterial. [IAS 1.29]
However, information should not be obscured by
aggregating or by providing immaterial information,
materiality considerations apply to the all parts of the
financial statements, and even when a standard
requires a specific disclosure, materiality
considerations do apply. [IAS 1.30A-31]*
* Added by Disclosure Initiative (Amendments to IAS
1), effective 1 January 2016.
Offsetting
Assets and liabilities, and income and expenses, may
not be offset unless required or permitted by an IFRS.
[IAS 1.32]
Comparative information
IAS 1 requires that comparative information to be
disclosed in respect of the previous period for all
amounts reported in the financial statements, both on
the face of the financial statements and in the notes,
unless another Standard requires otherwise.
Comparative information is provided for narrative and
descriptive where it is relevant to understanding the
financial statements of the current period. [IAS 1.38]
An entity is required to present at least two of each of
the following primary financial statements: [IAS
1.38A]
 statement of financial position*
 statement of profit or loss and other
comprehensive income
 separate statements of profit or loss (where
presented)
 statement of cash flows
 statement of changes in equity
 related notes for each of the above items.
* A third statement of financial position is required to
be presented if the entity retrospectively applies an
accounting policy, restates items, or reclassifies items,
and those adjustments had a material effect on the
information in the statement of financial position at
the beginning of the comparative period. [IAS 1.40A]
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Where comparative amounts are changed or
reclassified, various disclosures are required. [IAS
1.41]
Structure and content of financial statements in
general
IAS 1 requires an entity to clearly identify: [IAS 1.49-
51]
 the financial statements, which must be
distinguished from other information in a
published document
 each financial statement and the notes to the
financial statements.
In addition, the following information must be
displayed prominently, and repeated as necessary:
[IAS 1.51]
 the name of the reporting entity and any
change in the name
 whether the financial statements are a group of
entities or an individual entity
 information about the reporting period
 the presentation currency (as defined by
IAS 21 The Effects of Changes in Foreign
Exchange Rates)
 the level of rounding used (e.g. thousands,
millions).
Reporting period
There is a presumption that financial statements will
be prepared at least annually. If the annual reporting
period changes and financial statements are prepared
for a different period, the entity must disclose the
reason for the change and state that amounts are not
entirely comparable. [IAS 1.36]
Statement of financial position (balance sheet)
Current and non-current classification
An entity must normally present a classified statement
of financial position, separating current and non-
current assets and liabilities, unless presentation based
on liquidity provides information that is reliable. [IAS
1.60] In either case, if an asset (liability) category
combines amounts that will be received (settled) after
12 months with assets (liabilities) that will be received
(settled) within 12 months, note disclosure is required The line items to be included on the face of the
that separates the longer-term amounts from the 12- statement of financial position are: [IAS 1.54]
month amounts. [IAS 1.61]
(a) property, plant and equipment
Current assets are assets that are: [IAS 1.66] (b) investment property
 expected to be realised in the entity's normal (c) intangible assets
operating cycle financial assets (excluding amounts shown under
(d)
 held primarily for the purpose of trading (e), (h), and (i))
 expected to be realised within 12 months after investments accounted for using the equity
(e)
the reporting period method
 cash and cash equivalents (unless restricted). (f) biological assets
(g) Inventories
All other assets are non-current. [IAS 1.66]
(h) trade and other receivables
Current liabilitiesare those: [IAS 1.69] (i) cash and cash equivalents
(j) assets held for sale
 expected to be settled within the entity's (k) trade and other payables
normal operating cycle
(l) Provisions
 held for purpose of trading
 due to be settled within 12 months financial liabilities (excluding amounts shown
(m)
 for which the entity does not have an under (k) and (l))
unconditional right to defer settlement beyond current tax liabilities and current tax assets, as
(n)
12 months (settlement by the issue of equity defined in IAS 12
instruments does not impact classification). deferred tax liabilities and deferred tax assets, as
(o)
defined in IAS 12
Other liabilities are non-current. (p) liabilities included in disposal groups
non-controlling interests, presented within
When a long-term debt is expected to be refinanced (q)
equity
under an existing loan facility, and the entity has the
discretion to do so, the debt is classified as non- issued capital and reserves attributable to owners
(r)
current, even if the liability would otherwise be due of the parent.
within 12 months. [IAS 1.73]
Additional line items, headings and subtotals may be
If a liability has become payable on demand because needed to fairly present the entity's financial position.
an entity has breached an undertaking under a long- [IAS 1.55]
term loan agreement on or before the reporting date,
the liability is current, even if the lender has agreed, When an entity presents subtotals, those subtotals
after the reporting date and before the authorisation of shall be comprised of line items made up of amounts
the financial statements for issue, not to demand recognised and measured in accordance with IFRS; be
payment as a consequence of the breach. [IAS 1.74] presented and labelled in a clear and understandable
However, the liability is classified as non-current if manner; be consistent from period to period; and not
the lender agreed by the reporting date to provide a be displayed with more prominence than the required
period of grace ending at least 12 months after the end subtotals and totals. [IAS 1.55A]*
of the reporting period, within which the entity can
rectify the breach and during which the lender cannot * Added by Disclosure Initiative (Amendments to IAS
demand immediate repayment. [IAS 1.75] 1), effective 1 January 2016.

Line items Further sub-classifications of line items presented are

made in the statement or in the notes, for example:
[IAS 1.77-78]:
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  classes of property, plant and equipment
 disaggregation of receivables
 disaggregation of inventories in accordance
with IAS 2 Inventories
 disaggregation of provisions into employee
benefits and other items
 classes of equity and reserves.
Format of statement
IAS 1 does not prescribe the format of the statement
of financial position. Assets can be presented current
then non-current, or vice versa, and liabilities and
equity can be presented current then non-current then
equity, or vice versa. A net asset presentation (assets
minus liabilities) is allowed. The long-term financing
approach used in UK and elsewhere – fixed assets +
current assets - short term payables = long-term debt
plus equity – is also acceptable.
Share capital and reserves
Regarding issued share capital and reserves, the
following disclosures are required: [IAS 1.79]
 numbers of shares authorised, issued and fully
paid, and issued but not fully paid
 par value (or that shares do not have a par
value)
 a reconciliation of the number of shares
outstanding at the beginning and the end of the
period
 description of rights, preferences, and
restrictions
 treasury shares, including shares held by
subsidiaries and associates
 shares reserved for issuance under options and
contracts
 a description of the nature and purpose of each
reserve within equity.
Additional disclosures are required in respect of
entities without share capital and where an entity has
reclassified puttable financial instruments. [IAS 1.80-
80A]
Statement of profit or loss and other
comprehensive income
Concepts of profit or loss and comprehensive income
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Profit or loss is defined as "the total of income less
expenses, excluding the components of other
comprehensive income". Other comprehensive
income is defined as comprising "items of income and
expense (including reclassification adjustments) that
are not recognised in profit or loss as required or
permitted by other IFRSs". Total comprehensive
income is defined as "the change in equity during a
period resulting from transactions and other events,
other than those changes resulting from transactions
with owners in their capacity as owners". [IAS 1.7]
Comprehensive Profit Other
income = or + comprehensive
for the period loss income
All items of income and expense recognised in a
period must be included in profit or loss unless a
Standard or an Interpretation requires otherwise. [IAS
1.88] Some IFRSs require or permit that some
components to be excluded from profit or loss and
instead to be included in other comprehensive income.
Examples of items recognised outside of profit or
loss
 Changes in revaluation surplus where the
revaluation method is used under IAS 16
Property, Plant and Equipment and IAS 38
Intangible Assets
 Remeasurements of a net defined benefit
liability or asset recognised in accordance
with IAS 19 Employee Benefits (2011)
 Exchange differences from translating
functional currencies into presentation
currency in accordance with IAS 21 The
Effects of Changes in Foreign Exchange
Rates
 Gains and losses on remeasuring available-
for-sale financial assets in accordance with
IAS 39 Financial Instruments: Recognition
and Measurement
 The effective portion of gains and losses on
hedging instruments in a cash flow hedge
under IAS 39 or IFRS 9 Financial
Instruments
 Gains and losses on remeasuring an
investment in equity instruments where the
entity has elected to present them in other
 comprehensive income in accordance with
IFRS 9
 The effects of changes in the credit risk of a
financial liability designated as at fair value
through profit and loss under IFRS 9.
In addition, IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors requires the
correction of errors and the effect of changes in
accounting policies to be recognised outside profit or
loss for the current period. [IAS 1.89]
Choice in presentation and basic requirements
An entity has a choice of presenting:
 a single statement of profit or loss and other
comprehensive income, with profit or loss and
other comprehensive income presented in two
sections, or
 two statements:
o a separate statement of profit or loss
o a statement of comprehensive
income, immediately following the
statement of profit or loss and
beginning with profit or loss [IAS
1.10A]
The statement(s) must present: [IAS 1.81A]
 profit or loss
 total other comprehensive income
 comprehensive income for the period
 an allocation of profit or loss and
comprehensive income for the period between
non-controlling interests and owners of the
parent.
Profit or loss section or statement
The following minimum line items must be presented
in the profit or loss section (or separate statement of
profit or loss, if presented): [IAS 1.82-82A]
 revenue
 gains and losses from the derecognition of
financial assets measured at amortised cost
 finance costs
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 share of the profit or loss of associates and
joint ventures accounted for using the equity
method
 certain gains or losses associated with the
reclassification of financial assets
 tax expense
 a single amount for the total of discontinued
items
Expenses recognised in profit or loss should be
analysed either by nature (raw materials, staffing
costs, depreciation, etc.) or by function (cost of sales,
selling, administrative, etc). [IAS 1.99] If an entity
categorises by function, then additional information
on the nature of expenses – at a minimum
depreciation, amortisation and employee benefits
expense – must be disclosed. [IAS 1.104]
Other comprehensive income section
The other comprehensive income section is required
to present line items which are classified by their
nature, and grouped between those items that will or
will not be reclassified to profit and loss in subsequent
periods. [IAS 1.82A]
An entity's share of OCI of equity-accounted
associates and joint ventures is presented in aggregate
as single line items based on whether or not it will
subsequently be reclassified to profit or loss. [IAS
1.82A]*
* Clarified by Disclosure Initiative (Amendments to
IAS 1), effective 1 January 2016.
When an entity presents subtotals, those subtotals
shall be comprised of line items made up of amounts
recognised and measured in accordance with IFRS; be
presented and labelled in a clear and understandable
manner; be consistent from period to period; not be
displayed with more prominence than the required
subtotals and totals; and reconciled with the subtotals
or totals required in IFRS. [IAS 1.85A-85B]*
* Added by Disclosure Initiative (Amendments to IAS
1), effective 1 January 2016.
Other requirements
Additional line items may be needed to fairly present
the entity's results of operations. [IAS 1.85]
Items cannot be presented as 'extraordinary items' in
the financial statements or in the notes. [IAS 1.87]
Certain items must be disclosed separately either in
the statement of comprehensive income or in the
notes, if material, including: [IAS 1.98]
 write-downs of inventories to net realisable
value or of property, plant and equipment to
recoverable amount, as well as reversals of
such write-downs
 restructurings of the activities of an entity and
reversals of any provisions for the costs of
restructuring
 disposals of items of property, plant and
equipment
 disposals of investments
 discontinuing operations
 litigation settlements
 other reversals of provisions
Statement of cash flows
Rather than setting out separate requirements for
presentation of the statement of cash flows, IAS 1.111
refers to IAS 7 Statement of Cash Flows.
Statement of changes in equity
IAS 1 requires an entity to present a separate statement
of changes in equity. The statement must show: [IAS
1.106]
 total comprehensive income for the period,
showing separately amounts attributable to
owners of the parent and to non-controlling
interests
 the effects of any retrospective application of
accounting policies or restatements made in
accordance with IAS 8, separately for each
component of other comprehensive income
 reconciliations between the carrying amounts
at the beginning and the end of the period for
each component of equity, separately
disclosing:
o profit or loss
o other comprehensive income*
o transactions with owners, showing
separately contributions by and
distributions to owners and changes in
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ownership interests in subsidiaries that
do not result in a loss of control
* An analysis of other comprehensive income by item
is required to be presented either in the statement or in
the notes. [IAS 1.106A]
The following amounts may also be presented on the
face of the statement of changes in equity, or they may
be presented in the notes: [IAS 1.107]
 amount of dividends recognised as
distributions
 the related amount per share.
Notes to the financial statements
The notes must: [IAS 1.112]
 present information about the basis of
preparation of the financial statements and the
specific accounting policies used
 disclose any information required by IFRSs
that is not presented elsewhere in the financial
statements and
 provide additional information that is not
presented elsewhere in the financial statements
but is relevant to an understanding of any of
them
Notes are presented in a systematic manner and cross-
referenced from the face of the financial statements to
the relevant note. [IAS 1.113]
IAS 1.114 suggests that the notes should normally be
presented in the following order:*
 a statement of compliance with IFRSs
 a summary of significant accounting policies
applied, including: [IAS 1.117]
o the measurement basis (or bases) used
in preparing the financial statements
o the other accounting policies used that
are relevant to an understanding of the
financial statements
 supporting information for items presented on
the face of the statement of financial position
(balance sheet), statement(s) of profit or loss
and other comprehensive income, statement of
changes in equity and statement of cash flows,
 in the order in which each statement and each
line item is presented
 other disclosures, including:
o contingent liabilities (see IAS 37) and
unrecognised contractual
commitments
o non-financial disclosures, such as the
entity's financial risk management
objectives and policies (see IFRS 7
Financial Instruments: Disclosures)
* Disclosure Initiative (Amendments to IAS 1),
effective 1 January 2016, clarifies this order just to be
an example of how notes can be ordered and adds
additional examples of possible ways of ordering the
notes to clarify that understandability and
comparability should be considered when determining
the order of the notes.
Other disclosures
Judgements and key assumptions
An entity must disclose, in the summary of significant
accounting policies or other notes, the judgements,
apart from those involving estimations, that
management has made in the process of applying the
entity's accounting policies that have the most
significant effect on the amounts recognised in the
financial statements. [IAS 1.122]
Examples cited in IAS 1.123 include management's
judgements in determining:
 when substantially all the significant risks and
rewards of ownership of financial assets and
lease assets are transferred to other entities
 whether, in substance, particular sales of
goods are financing arrangements and
therefore do not give rise to revenue.
An entity must also disclose, in the notes, information
about the key assumptions concerning the future, and
other key sources of estimation uncertainty at the end
of the reporting period, that have a significant risk of
causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year.
[IAS 1.125] These disclosures do not involve
disclosing budgets or forecasts. [IAS 1.130]
Dividends
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In addition to the distributions information in the
statement of changes in equity (see above), the
following must be disclosed in the notes: [IAS 1.137]
 the amount of dividends proposed or declared
before the financial statements were
authorised for issue but which were not
recognised as a distribution to owners during
the period, and the related amount per share
 the amount of any cumulative preference
dividends not recognised.
Capital disclosures
An entity discloses information about its objectives,
policies and processes for managing capital. [IAS
1.134] To comply with this, the disclosures include:
[IAS 1.135]
 qualitative information about the entity's
objectives, policies and processes for
managing capital, including>
o description of capital it manages
o nature of external capital requirements,
if any
o how it is meeting its objectives
 quantitative data about what the entity regards
as capital
 changes from one period to another
 whether the entity has complied with any
external capital requirements and
 if it has not complied, the consequences of
such non-compliance.
Puttable financial instruments
IAS 1.136A requires the following additional
disclosures if an entity has a puttable instrument that
is classified as an equity instrument:
 summary quantitative data about the amount
classified as equity
 the entity's objectives, policies and processes
for managing its obligation to repurchase or
redeem the instruments when required to do so
by the instrument holders, including any
changes from the previous period
 the expected cash outflow on redemption or
repurchase of that class of financial
instruments and
  information about how the expected cash recognised in the
outflow on redemption or repurchase was recognised in profit or loss
income statement
determined. recognised [directly]
recognised in other
in equity (only for OCI
Other information comprehensive income
components)
recognised [directly]
The following other note disclosures are required by
in equity (for recognised outside profit or
IAS 1 if not disclosed elsewhere in information
recognition both in loss (either in OCI or equity)
published with the financial statements: [IAS 1.138]
OCI and equity)
 domicile and legal form of the entity removed from equity
reclassified from equity to
 country of incorporation and recognised in
profit or loss as a
 address of registered office or principal place profit or loss
reclassification adjustment
of business ('recycling')
 description of the entity's operations and Standard or/and
IFRSs
principal activities Interpretation
 if it is part of a group, the name of its parent on the face of in
and the ultimate parent of the group owners (exception for
 if it is a limited life entity, information equity holders
'ordinary equity holders')
regarding the length of the life
balance sheet date end of the reporting period
Terminology reporting date end of the reporting period
after the balance sheet
after the reporting period
The 2007 comprehensive revision to IAS 1 introduced date
some new terminology. Consequential amendments
were made at that time to all of the other existing
IFRSs, and the new terminology has been used in
subsequent IFRSs including amendments. IAS 1.8
states: "Although this Standard uses the terms 'other
comprehensive income', 'profit or loss' and 'total
comprehensive income', an entity may use other terms
to describe the totals as long as the meaning is clear.
For example, an entity may use the term 'net income'
to describe profit or loss." Also, IAS 1.57(b) states:
"The descriptions used and the ordering of items or
aggregation of similar items may be amended
according to the nature of the entity and its
transactions, to provide information that is relevant to
an understanding of the entity's financial position."

Term before 2007 Term as amended by IAS 1

revision of IAS 1 (2007)
statement of financial
balance sheet
position
cash flow statement statement of cash flows
statement of comprehensive
income (income statement is
income statement
retained in case of a two-
statement approach)

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Overview
IAS 16 Property, Plant and Equipment outlines the
accounting treatment for most types of property,
plant and equipment. Property, plant and equipment
is initially measured at its cost, subsequently
measured either using a cost or revaluation model,
and depreciated so that its depreciable amount is
allocated on a systematic basis over its useful life.
IAS 16 was reissued in December 2003 and applies
to annual periods beginning on or after 1 January
2005.
Related Interpretations
 IFRIC 20 Stripping Costs in the Production
Phase of a Surface Mine
 SIC-6 Costs of Modifying Existing Software.
SIC-6 was superseded by and incorporated
into IAS 16 (2003).
 SIC-14 Property, Plant and Equipment –
Compensation for the Impairment or Loss of
Items. SIC-14 was superseded by and
incorporated into IAS 16 (2003).
 SIC-23 Property, Plant and Equipment -
Major Inspection or Overhaul Costs. SIC-23
was superseded by and incorporated into
IAS 16 (2003).
Amendments under consideration by the IASB
 IAS 16 — Proceeds before intended use
Summary of IAS 16
Objective of IAS 16
The objective of IAS 16 is to prescribe the
accounting treatment for property, plant, and
equipment. The principal issues are the recognition
of assets, the determination of their carrying
amounts, and the depreciation charges and
impairment losses to be recognised in relation to
them.
Scope
IAS 16 applies to the accounting for property, plant
and equipment, except where another standard
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requires or permits differing accounting treatments,
for example:
 assets classified as held for sale in accordance
with IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations
 biological assets related to agricultural
activity accounted for under IAS 41
Agriculture
 exploration and evaluation assets recognised
in accordance with IFRS 6 Exploration for
and Evaluation of Mineral Resources
 mineral rights and mineral reserves such as
oil, natural gas and similar non-regenerative
resources.
The standard does apply to property, plant, and
equipment used to develop or maintain the last three
categories of assets. [IAS 16.3]
The cost model in IAS 16 also applies to investment
property accounted for using the cost model under
IAS 40 Investment Property. [IAS 16.5]
The standard does apply to bearer plants but it does
not apply to the produce on bearer plants. [IAS 16.3]
Note: Bearer plants were brought into the scope of
IAS 16 by Agriculture: Bearer Plants (Amendments
to IAS 16 and IAS 41), which applies to annual
periods beginning on or after 1 January 2016.
Recognition
Items of property, plant, and equipment should be
recognised as assets when it is probable that: [IAS
16.7]
 it is probable that the future economic
benefits associated with the asset will flow to
the entity, and
 the cost of the asset can be measured reliably.
This recognition principle is applied to all property,
plant, and equipment costs at the time they are
incurred. These costs include costs incurred initially
to acquire or construct an item of property, plant and
equipment and costs incurred subsequently to add to,
replace part of, or service it.
IAS 16 does not prescribe the unit of measure for
recognition – what constitutes an item of property,
plant, and equipment. [IAS 16.9] Note, however, that
if the cost model is used (see below) each part of an
item of property, plant, and equipment with a cost
that is significant in relation to the total cost of the
item must be depreciated separately. [IAS 16.43]
IAS 16 recognises that parts of some items of
property, plant, and equipment may require
replacement at regular intervals. The carrying
amount of an item of property, plant, and equipment
will include the cost of replacing the part of such an
item when that cost is incurred if the recognition
criteria (future benefits and measurement reliability)
are met. The carrying amount of those parts that are
replaced is derecognised in accordance with the
derecognition provisions of IAS 16.67-72. [IAS
16.13]
Also, continued operation of an item of property,
plant, and equipment (for example, an aircraft) may
require regular major inspections for faults regardless
of whether parts of the item are replaced. When each
major inspection is performed, its cost is recognised
in the carrying amount of the item of property, plant,
and equipment as a replacement if the recognition
criteria are satisfied. If necessary, the estimated cost
of a future similar inspection may be used as an
indication of what the cost of the existing inspection
component was when the item was acquired or
constructed. [IAS 16.14]
Initial measurement
An item of property, plant and equipment should
initially be recorded at cost. [IAS 16.15] Cost
includes all costs necessary to bring the asset to
working condition for its intended use. This would
include not only its original purchase price but also
costs of site preparation, delivery and handling,
installation, related professional fees for architects
and engineers, and the estimated cost of dismantling
and removing the asset and restoring the site (see
IAS 37 Provisions, Contingent Liabilities and
Contingent Assets). [IAS 16.16-17]
If payment for an item of property, plant, and
equipment is deferred, interest at a market rate must
be recognised or imputed. [IAS 16.23]
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If an asset is acquired in exchange for another asset
(whether similar or dissimilar in nature), the cost will
be measured at the fair value unless (a) the exchange
transaction lacks commercial substance or (b) the fair
value of neither the asset received nor the asset given
up is reliably measurable. If the acquired item is not
measured at fair value, its cost is measured at the
carrying amount of the asset given up. [IAS 16.24]
Measurement subsequent to initial recognition
IAS 16 permits two accounting models:
 Cost model. The asset is carried at cost less
accumulated depreciation and impairment.
[IAS 16.30]
 Revaluation model. The asset is carried at a
revalued amount, being its fair value at the
date of revaluation less subsequent
depreciation and impairment, provided that
fair value can be measured reliably. [IAS
16.31]
The revaluation model
Under the revaluation model, revaluations should be
carried out regularly, so that the carrying amount of
an asset does not differ materially from its fair value
at the balance sheet date. [IAS 16.31]
If an item is revalued, the entire class of assets to
which that asset belongs should be revalued. [IAS
16.36]
Revalued assets are depreciated in the same way as
under the cost model (see below).
If a revaluation results in an increase in value, it
should be credited to other comprehensive income
and accumulated in equity under the heading
"revaluation surplus" unless it represents the reversal
of a revaluation decrease of the same asset previously
recognised as an expense, in which case it should be
recognised in profit or loss. [IAS 16.39]
A decrease arising as a result of a revaluation should
be recognised as an expense to the extent that it
exceeds any amount previously credited to the
revaluation surplus relating to the same asset. [IAS
16.40]
When a revalued asset is disposed of, any revaluation
surplus may be transferred directly to retained
earnings, or it may be left in equity under the heading
revaluation surplus. The transfer to retained earnings
should not be made through profit or loss. [IAS
16.41]
Depreciation (cost and revaluation models)
For all depreciable assets:
The depreciable amount (cost less residual value)
should be allocated on a systematic basis over the
asset's useful life [IAS 16.50].
The residual value and the useful life of an asset
should be reviewed at least at each financial year-end
and, if expectations differ from previous estimates,
any change is accounted for prospectively as a
change in estimate under IAS 8. [IAS 16.51]
The depreciation method used should reflect the
pattern in which the asset's economic benefits are
consumed by the entity [IAS 16.60]; a depreciation
method that is based on revenue that is generated by
an activity that includes the use of an asset is not
appropriate. [IAS 16.62A]
Note: The clarification regarding the revenue-based
depreciation method was introduced by Clarification
of Acceptable Methods of Depreciation and
Amortisation, which applies to annual periods
beginning on or after 1 January 2016.
The depreciation method should be reviewed at least
annually and, if the pattern of consumption of
benefits has changed, the depreciation method should
be changed prospectively as a change in estimate
under IAS 8. [IAS 16.61] Expected future reductions
in selling prices could be indicative of a higher rate
of consumption of the future economic benefits
embodied in an asset. [IAS 16.56]
Note: The guidance on expected future reductions in
selling prices was introduced by Clarification of
Acceptable Methods of Depreciation and
Amortisation, which applies to annual periods
beginning on or after 1 January 2016.
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Depreciation should be charged to profit or loss,
unless it is included in the carrying amount of
another asset [IAS 16.48].
Depreciation begins when the asset is available for
use and continues until the asset is derecognised,
even if it is idle. [IAS 16.55]
Recoverability of the carrying amount
IAS 16 Property, Plant and Equipment requires
impairment testing and, if necessary, recognition for
property, plant, and equipment. An item of property,
plant, or equipment shall not be carried at more than
recoverable amount. Recoverable amount is the
higher of an asset's fair value less costs to sell and its
value in use.
Any claim for compensation from third parties for
impairment is included in profit or loss when the
claim becomes receivable. [IAS 16.65]
Derecognition (retirements and disposals)
An asset should be removed from the statement of
financial position on disposal or when it is
withdrawn from use and no future economic benefits
are expected from its disposal. The gain or loss on
disposal is the difference between the proceeds and
the carrying amount and should be recognised in
profit and loss. [IAS 16.67-71]
If an entity rents some assets and then ceases to rent
them, the assets should be transferred to inventories
at their carrying amounts as they become held for
sale in the ordinary course of business. [IAS 16.68A]
Disclosure
Information about each class of property, plant and
equipment
For each class of property, plant, and equipment,
disclose: [IAS 16.73]
 basis for measuring carrying amount
 depreciation method(s) used
 useful lives or depreciation rates
 gross carrying amount and accumulated
depreciation and impairment losses
  reconciliation of the carrying amount at the
beginning and the end of the period, showing:
o additions
o disposals
o acquisitions through business
combinations
o revaluation increases or decreases
o impairment losses
o reversals of impairment losses
o depreciation
o net foreign exchange differences on
translation
o other movements
Additional disclosures
The following disclosures are also required: [IAS
16.74]
 restrictions on title and items pledged as
security for liabilities
 expenditures to construct property, plant, and
equipment during the period
 contractual commitments to acquire property,
plant, and equipment
 compensation from third parties for items of
property, plant, and equipment that were
impaired, lost or given up that is included in
profit or loss.
IAS 16 also encourages, but does not require, a
number of additional disclosures. [IAS 16.79]
Revalued property, plant and equipment
If property, plant, and equipment is stated at revalued
amounts, certain additional disclosures are required:
[IAS 16.77]
 the effective date of the revaluation
 whether an independent valuer was involved
 for each revalued class of property, the
carrying amount that would have been
recognised had the assets been carried under
the cost model
 the revaluation surplus, including changes
during the period and any restrictions on the
distribution of the balance to shareholders.
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Entities with property, plant and equipment stated at
revalued amounts are also required to make
disclosures under IFRS 13 Fair Value Measurement.
Overview
IAS 2 Inventories contains the requirements on how
to account for most types of inventory. The standard
requires inventories to be measured at the lower of
cost and net realisable value (NRV) and outlines
acceptable methods of determining cost, including
specific identification (in some cases), first-in first-
out (FIFO) and weighted average cost.
A revised version of IAS 2 was issued in December
2003 and applies to annual periods beginning on or
after 1 January 2005.
Related Interpretations
 IFRIC 20 Stripping Costs in the Production
Phase of a Surface Mine
 SIC-1 Consistency - Different Cost Formulas
for Inventories. SIC-1 was superseded by
and incorporated into IAS 2 (Revised
2003).
Summary of IAS 2
Objective of IAS 2
The objective of IAS 2 is to prescribe the accounting
treatment for inventories. It provides guidance for
determining the cost of inventories and for
subsequently recognising an expense, including any
write-down to net realisable value. It also provides
guidance on the cost formulas that are used to assign
costs to inventories.
Scope
Inventories include assets held for sale in the
ordinary course of business (finished goods), assets
in the production process for sale in the ordinary
course of business (work in process), and materials
and supplies that are consumed in production (raw
materials). [IAS 2.6]
However, IAS 2 excludes certain inventories from its
scope: [IAS 2.2]
 work in process arising under construction
contracts (see IAS 11 Construction
Contracts)
 financial instruments (see IAS 39 Financial
Instruments: Recognition and Measurement)
 biological assets related to agricultural
activity and agricultural produce at the point
of harvest (see IAS 41 Agriculture).
Also, while the following are within the scope of the
standard, IAS 2 does not apply to the measurement of
inventories held by: [IAS 2.3]
 producers of agricultural and forest products,
agricultural produce after harvest, and
minerals and mineral products, to the extent
that they are measured at net realisable value
(above or below cost) in accordance with
well-established practices in those industries.
When such inventories are measured at net
realisable value, changes in that value are
recognised in profit or loss in the period of
the change
 commodity brokers and dealers who measure
their inventories at fair value less costs to sell.
When such inventories are measured at fair
value less costs to sell, changes in fair value
less costs to sell are recognised in profit or
loss in the period of the change.
Fundamental principle of IAS 2
Inventories are required to be stated at the lower of
cost and net realisable value (NRV). [IAS 2.9]
Measurement of inventories
Cost should include all: [IAS 2.10]
 costs of purchase (including taxes, transport,
and handling) net of trade discounts received
 costs of conversion (including fixed and
variable manufacturing overheads) and
 other costs incurred in bringing the
inventories to their present location and
condition
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IAS 23 Borrowing Costs identifies some limited
circumstances where borrowing costs (interest) can
be included in cost of inventories that meet the
definition of a qualifying asset. [IAS 2.17 and IAS
23.4]
Inventory cost should not include: [IAS 2.16 and
2.18]
 abnormal waste
 storage costs
 administrative overheads unrelated to
production
 selling costs
 foreign exchange differences arising directly
on the recent acquisition of inventories
invoiced in a foreign currency
 interest cost when inventories are purchased
with deferred settlement terms.
The standard cost and retail methods may be used for
the measurement of cost, provided that the results
approximate actual cost. [IAS 2.21-22]
For inventory items that are not interchangeable,
specific costs are attributed to the specific individual
items of inventory. [IAS 2.23]
For items that are interchangeable, IAS 2 allows the
FIFO or weighted average cost formulas. [IAS 2.25]
The LIFO formula, which had been allowed prior to
the 2003 revision of IAS 2, is no longer allowed.
The same cost formula should be used for all
inventories with similar characteristics as to their
nature and use to the entity. For groups of inventories
that have different characteristics, different cost
formulas may be justified. [IAS 2.25]
Write-down to net realisable value
NRV is the estimated selling price in the ordinary
course of business, less the estimated cost of
completion and the estimated costs necessary to
make the sale. [IAS 2.6] Any write-down to NRV
should be recognised as an expense in the period in
which the write-down occurs. Any reversal should be
recognised in the income statement in the period in
which the reversal occurs. [IAS 2.34]
Expense recognition
IAS 18 Revenue addresses revenue recognition for
the sale of goods. When inventories are sold and
revenue is recognised, the carrying amount of those
inventories is recognised as an expense (often called
cost-of-goods-sold). Any write-down to NRV and
any inventory losses are also recognised as an
expense when they occur. [IAS 2.34]

Disclosure

Required disclosures: [IAS 2.36]

 accounting policy for inventories

 carrying amount, generally classified as
merchandise, supplies, materials, work in
progress, and finished goods. The
classifications depend on what is appropriate
for the entity
 carrying amount of any inventories carried at
fair value less costs to sell
 amount of any write-down of inventories
recognised as an expense in the period
 amount of any reversal of a write-down to
NRV and the circumstances that led to such
reversal
 carrying amount of inventories pledged as
security for liabilities
 cost of inventories recognised as expense
(cost of goods sold).

IAS 2 acknowledges that some enterprises classify

income statement expenses by nature (materials,
labour, and so on) rather than by function (cost of
goods sold, selling expense, and so on). Accordingly,
as an alternative to disclosing cost of goods sold
expense, IAS 2 allows an entity to disclose operating
costs recognised during the period by nature of the
cost (raw materials and consumables, labour costs,
other operating costs) and the amount of the net
change in inventories for the period). [IAS 2.39] This
is consistent with IAS 1 Presentation of Financial
Statements, which allows presentation of expenses by
function or nature.

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