Q4: How do we value Property, plant & equipment after we have first acquired it?

A:

We saw that each item of Property, plant and equipment is first included in a firm’s accounts at cost. However, for the ongoing value of each class of Property, plant and equipment a firm needs to decide whether to use the cost of revaluation models. We can see in Ryman Healthcare’s 2019 Annual Report (footnote 6 – see Figure 5.2 in Section 5.3 below) that Ryman Healthcare has used the revaluation model for Freehold land and Buildings; and the cost model for Property under development, Plant and equipment, Furniture and fittings and Motor vehicles. If a firm uses the cost model for an item of Property, plant and equipment it:

“… shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.”

AASB 116 Property, Plant and Equipment para 30

Where fair value can be measured reliably, a firm can use the revaluation model for an item of Property, plant and equipment. This involves a firm revaluing an item of Property, plant and equipment to its fair value. The firm can then depreciate or identify impairment losses based on this revalued amount, so that the item of Property, plant and equipment:

“…shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses…”

AASB 116 para 31

Study Guide Chap 5 Page 5-8