IAS 16 property, plant and equipment explained

Property, plant and equipment is the largest asset for most manufacturers, telecom operators, airlines and utilities. This guide explains what IAS 16 covers, what can and cannot be included in the cost of PPE, how depreciation and subsequent costs work, and when an item is derecognised.

By Mirza Fahad Baig, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

IAS 16 Property, Plant and Equipment sets out how to account for tangible assets held for use in production, supply, rental or administration and expected to be used for more than one period. An item is recognised when future economic benefits are probable and its cost can be measured reliably. It is measured initially at cost, including directly attributable costs and estimated dismantling costs, then carried under the cost model or the revaluation model, and depreciated over its useful life.

At a glance

Recognise when
Benefits probable, cost reliable
Initial cost
Purchase price plus directly attributable costs
Later
Cost model or revaluation model
Depreciation
Systematic, over useful life
Components
Significant parts separately
Excel
Depreciation and revaluation schedule
IAS 16 property, plant and equipment explainedRecognise when: Benefits probable, cost reliable; Initial cost: Purchase price plus directly attributable costs; Later: Cost model or revaluation model; Depreciation: Systematic, over useful life; Components: Significant parts separately; Excel: Depreciation and revaluation schedule.KEY FACTS AT A GLANCEIAS 16 property, plant and equipment explainedRecognise whenBenefits probable, costreliableInitial costPurchase price plusdirectly attributablecostsLaterCost model or revaluationmodelDepreciationSystematic, over usefullifeComponentsSignificant partsseparatelyExcelDepreciation andrevaluation scheduleChecked against official sourcesTax BakersIAS 16 property, plant and equipment explainedRecognise when: Benefits probable, cost reliable; Initial cost: Purchase price plus directly attributable costs; Later: Cost model or revaluation model; Depreciation: Systematic, over useful life; Components: Significant parts separately; Excel: Depreciation and revaluation schedule.KEY FACTS AT A GLANCEIAS 16 property, plant andequipment explainedRecognise whenBenefits probable, cost reliableInitial costPurchase price plus directly attributablecostsLaterCost model or revaluation modelDepreciationSystematic, over useful lifeComponentsSignificant parts separatelyExcelDepreciation and revaluation scheduleChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

How does IAS 16 work through an asset's life?

Property, plant and equipment through its lifeProperty, plant and equipment through its life1RecogniseLikely benefits,reliable cost2Measure costPrice plus coststo get it working3DepreciateOver useful life,by component4ReviewLife, residual,impairment5DerecogniseOn disposal orno future benefit
From recognition to disposal under IAS 16.

What goes into the cost of PPE?

A company buys a production machine. The directly attributable costs of bringing it to the location and condition needed to operate as intended are included; other costs are expensed.

ItemCUTreatment
Purchase price500,000Included
Trade discount(20,000)Deducted
Import duties, not recoverable15,000Included
Delivery and handling5,000Included
Installation and assembly10,000Included
Testing that it works properly3,000Included
Present value of dismantling and site restoration (see decommissioning costs)7,000Included
Cost of the machine520,000
Staff training, opening costs, general overheads, initial operating lossesNot includedExpensed

Since a 2020 amendment effective in 2022, proceeds from selling items produced while testing an asset are recognised in profit or loss, not deducted from its cost. Borrowing costs on qualifying assets are capitalised under IAS 23.

Which assets does IAS 16 cover?

Tangible items held for use in producing or supplying goods or services, for rental to others or for administration, and expected to be used for more than one period: land, buildings, machinery, vehicles, network equipment, furniture and IT hardware. It excludes assets held for sale (IFRS 5), biological assets (IAS 41), mineral rights and exploration assets (IFRS 6), right-of-use assets (IFRS 16) and investment property measured at fair value (IAS 40).

Are spare parts PPE or inventory?

Spare parts, stand-by equipment and servicing equipment are property, plant and equipment when they meet the definition, which usually means they are expected to be used for more than one period. Otherwise they are inventory. A spare engine kept for an aircraft fleet is PPE; consumable filters are inventory.

What about subsequent costs?

Day-to-day servicing, such as labour and small parts, is expensed as repairs and maintenance. Replacing a significant part, such as a furnace lining or an aircraft engine, is capitalised and the carrying amount of the replaced part is derecognised. Major inspections are capitalised as a component and depreciated until the next inspection. See component depreciation.

Cost model or revaluation model?

After recognition, a company chooses for each class of PPE either the cost model, cost less accumulated depreciation and impairment, or the revaluation model, fair value at the revaluation date less later depreciation and impairment. Most companies use the cost model. See the revaluation model.

How is PPE depreciated?

The depreciable amount, cost less residual value, is allocated systematically over the useful life, using the method that reflects how the asset's benefits are consumed: straight-line, reducing balance or units of production. Land is usually not depreciated. Residual value, useful life and method are reviewed at least at each year end. See depreciation methods with examples.

When is PPE derecognised?

On disposal, or when no future economic benefits are expected from its use or disposal. The gain or loss, the difference between net disposal proceeds and carrying amount, goes to profit or loss, but is not classified as revenue. Assets held for sale move to IFRS 5.

How does US GAAP differ?

US GAAP does not allow revaluation and does not require component depreciation. See IAS 16 vs US GAAP. To test depreciation and revaluation numbers, use the Depreciation and revaluation schedule (Excel).

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Questions people ask

What is IAS 16?

The IFRS standard on property, plant and equipment, covering recognition, measurement, depreciation and derecognition of tangible assets used over more than one period.

What is included in the cost of PPE?

Purchase price, non-refundable taxes, and directly attributable costs of bringing the asset to working condition, plus the estimated cost of dismantling and restoring the site.

Are training costs capitalised as PPE?

No. Staff training, administration and general overheads are expensed.

Can PPE be revalued under IFRS?

Yes. IAS 16 allows the revaluation model for a whole class of assets, as an alternative to the cost model.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 16 Property, Plant and Equipment

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IAS 16Depreciation methods, useful life and residual valueIAS 16The revaluation model and revaluation surplusIFRS vs US GAAPIAS 16 vs US GAAP: revaluation of property, plant and equipment

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This guide is general information. It is not tax or legal advice for your situation.