What does IAS 16 state about how we should depreciate an asset?

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]. Depreciation should be charged to profit or loss, unless it is included in the carrying amount of another asset [IAS 16.48].

Are spare parts PPE or inventory?

Many preparers incorrectly assume that spare parts, stand-by equipment and servicing equipment are automatically accounted for as inventory, and expensed when they are used. IAS 16, paragraph 8 notes that such items are recognised as PPE when they meet the definition of PPE. Otherwise, they are classified as inventory.

Can you depreciate spare parts?

When treated as inventory, the spare parts are not depreciated and are expensed when placed in service, similar to maintenance expense. When considered to be long-lived assets, the spare parts are depreciated over their useful lives or the remaining service lives of the related equipment.

Are spare parts considered inventory?

Repairable spare parts are classified as other non-current assets similar to property, plant and equipment, rather than inventory because such parts are repaired and re-used over a long period of time, between three and ten years, the same period over which such parts are amortized.

When did IAS 16 replace IAS 4 depreciation?

IAS 16 Property, Plant and Equipment replaced IAS 16 Accounting for Property, Plant and Equipment (issued in March 1982). IAS 16 that was issued in March 1982 also replaced some parts in IAS 4 Depreciation Accounting that was approved in November 1975.

Is the accounting of spare parts included in IAS 16?

IASB did make the above amendments to include the recognition of spare parts, stand-by equipment and servicing equipment in accordance with IAS 16 however, no detail guidance was provided. Therefore, different interpretations have been developed to address this so-called accounting ‘grey area’.

What does IAS 16 property plant and equipment mean?

The Committee con­sid­ered a request for im­prove­ment of IAS 16 Property, Plant and Equipment with respect to servicing equipment and clas­si­fi­ca­tion as property, plant and equipment (PP&E) or inventory.

What does IAS 16.3 apply to in IFRS?

IAS 16 applies to all items of PP&E not covered by other IFRS. Paragraph IAS 16.3 specifies scope exemptions. Property, plant and equipment is often abbreviated as PP&E. Sometimes, property, plant and equipment are referred to as ‘fixed assets’ together with intangible assets.