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Commission Regulation
(EC) No 2238/2004 of 29 December 2004 amending
Regulation (EC) No 1725/2003 adopting certain
international accounting standards in accordance with
Regulation (EC) No 1606/2002 of the European Parliament
and of the Council, as regards IASs IFRS 1, IASs Nos 1
to 10, 12 to 17, 19 to 24, 27 to 38, 40 and 41 and SIC
Nos 1 to 7, 11 to 14, 18 to 27 and 30 to 33
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Recognition
7. The cost of an item of property, plant and
equipment shall be
recognised as an asset if, and only if:
(a) it is probable that future economic
benefits associated with
the item will flow to the entity; and
(b) the cost of the item can be measured
reliably.
8. Spare parts and servicing equipment are
usually carried as inventory and recognised in profit or loss as consumed.
However, major spare parts and stand-by equipment qualify as
property, plant and equipment when an entity expects to use them during more
than one period. Similarly, if the spare parts and servicing
equipment can be used only in connection with an item of property, plant
and equipment, they are accounted for as property, plant and
equipment.
9. This Standard does not prescribe the unit
of measure for recognition, ie what constitutes an item of property, plant
and equipment. Thus, judgement is required in applying the
recognition criteria to an entity’s specific circumstances. It may be
appropriate to aggregate individually insignificant items, such as
moulds, tools and dies, and to apply the criteria to the aggregate
value.
10. An entity evaluates under this recognition
principle all its 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.
Initial Costs
11. Items of property, plant and equipment may
be acquired for safety or environmental reasons. The acquisition of such
property, plant and equipment, although not directly increasing
the future economic benefits of any particular existing item of
property, plant and equipment, may be necessary for an entity to
obtain the future economic benefits from its other assets. Such
items of property, plant and equipment qualify for recognition as
assets because they enable an entity to derive future economic benefits
from related assets in excess of what could be derived had those
items not been acquired. For example, a chemical manufacturer may
install new chemical handling processes to comply with
environmental requirements for the production and storage of dangerous chemicals;
related plant enhancements are recognised as an asset
because without them the entity is unable to manufacture and sell
chemicals. However, the resulting carrying amount of such an asset and
related assets is reviewed for impairment in accordance with IAS
36 Impairment
of Assets.
Subsequent Costs
12. Under the recognition principle in
paragraph 7, an entity does not recognise in the carrying amount of an item of
property, plant and equipment the costs of the day-to-day
servicing of the item. Rather, these costs are recognised in profit or loss
as incurred. Costs of day-to-day servicing are primarily the costs
of labour and consumables, and may include the cost of small
parts. The purpose of these expenditures is often described as for
the ‘repairs and maintenance’ of the item of property, plant
and equipment.
13. Parts of some items of property, plant and
equipment may require replacement at regular intervals. For example,
a furnace may require relining after a specified number of hours of
use, or aircraft interiors such as seats and galleys may require
replacement several times during the life of the airframe. Items of
property, plant and equipment may also be acquired to make a less frequently
recurring replacement, such as replacing the interior walls of a
building, or to make a nonrecurring replacement. Under the recognition principle
in paragraph 7, an entity recognises in the carrying amount
of an item of property, plant and equipment the cost of replacing part
of such an item when that cost is incurred if the recognition
criteria are met. The carrying amount of those parts that are replaced is
derecognised in accordance with the derecognition provisions of this
Standard (see paragraphs 67- 72).
14. A condition of continuing to operate an
item of property, plant and equipment (for example, an aircraft) may be
performing 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. Any remaining carrying amount of the cost of
the previous inspection (as distinct from physical parts) is
derecognised. This occurs regardless of whether the cost of the previous
inspection was identified in the transaction in which the
item was acquired or constructed. 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.
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