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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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Measurement at
Recognition
15. An item of
property, plant and equipment that qualifies for recognition
as an asset shall be measured at its cost.
Elements of Cost
16. The cost of an
item of property, plant and equipment comprises:
(a) its purchase
price, including import duties and non-refundable purchase
taxes, after deducting trade discounts and rebates.
(b) any costs
directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating in
the manner intended by management.
(c) the initial
estimate of the costs of dismantling and removing the item and
restoring the site on which it is located, the obligation for
which an entity incurs either when the item is acquired or as
a consequence of having used the item during a particular
period for purposes other than to produce inventories during
that period.
17. Examples of
directly attributable costs are:
(a) costs of
employee benefits (as defined in IAS 19 Employee Benefits)
arising directly from the construction or acquisition of the
item of property, plant and equipment;
(b) costs of site
preparation;
(c) initial delivery
and handling costs;
(d) installation and
assembly costs;
(e) costs of testing
whether the asset is functioning properly, after deducting the
net proceeds from selling any items produced while bringing
the asset to that location and condition (such as samples
produced when testing equipment); and
(f) professional
fees.
18. An entity
applies IAS 2 Inventories to the costs of obligations
for dismantling, removing and restoring the site on which an
item is located that are incurred during a particular period
as a consequence of having used the item to produce
inventories during that period. The obligations for costs
accounted for in accordance with IAS 2 or IAS 16 are
recognised and measured in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
19. Examples of
costs that are not costs of an item of property, plant and
equipment are:
(a) costs of opening
a new facility;
(b) costs of
introducing a new product or service (including costs of
advertising and promotional activities);
(c) costs of
conducting business in a new location or with a new class of
customer (including costs of staff training); and
(d) administration
and other general overhead costs.
20. Recognition of
costs in the carrying amount of an item of property, plant and
equipment ceases when the item is in the location and
condition necessary for it to be capable of operating in the
manner intended by management. Therefore, costs incurred in
using or redeploying an item are not included in the carrying
amount of that item. For example, the following costs are not
included in the carrying amount of an item of property, plant
and equipment:
(a) costs incurred
while an item capable of operating in the manner intended by
management has yet to be brought into use or is operated at
less than full capacity;
(b) initial
operating losses, such as those incurred while demand for the
item’s output builds up; and
(c) costs of
relocating or reorganising part or all of an entity’s
operations.
21. Some operations
occur in connection with the construction or development of an
item of property, plant and equipment, but are not necessary
to bring the item to the location and condition necessary for
it to be capable of operating in the manner intended by
management. These incidental operations may occur before or
during the construction or development activities. For example,
income may be earned through using a building site as a car
park until construction starts. Because incidental operations
are not necessary to bring an item to the location and
condition necessary for it to be capable of operating in the
manner intended by management, the income and related expenses
of incidental operations are recognised in profit or loss and
included in their respective classifications of income and
expense.
22. The cost of a
self-constructed asset is determined using the same principles
as for an acquired asset. If an entity makes similar assets
for sale in the normal course of business, the cost of the
asset is usually the same as the cost of constructing an asset
for sale (see IAS 2). Therefore, any internal profits are
eliminated in arriving at such costs. Similarly, the cost of
abnormal amounts of wasted material, labour, or other
resources incurred in self-constructing an asset is not
included in the cost of the asset. IAS 23 Borrowing Costs establishes
criteria for the recognition of interest as a component of the
carrying amount of a self-constructed item of property, plant
and equipment.
Measurement of Cost
23. The cost of an
item of property, plant and equipment is the cash price
equivalent at the recognition date. If payment is deferred
beyond normal credit terms, the difference between the cash
price equivalent and the total payment is recognised as
interest over the period of credit unless such interest is
recognised in the carrying amount of the item in accordance
with the allowed alternative treatment in IAS 23.
24. One or more
items of property, plant and equipment may be acquired in
exchange for a non-monetary asset or assets, or a combination
of monetary and non-monetary assets. The following discussion
refers simply to an exchange of one non-monetary asset for
another, but it also applies to all exchanges described in the
preceding sentence. The cost of such an item of property,
plant and equipment is measured at 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. The acquired item is measured in
this way even if an entity cannot immediately derecognise the
asset given up. If the acquired item is not measured at fair
value, its cost is measured at the carrying amount of the
asset given up.
25. An entity
determines whether an exchange transaction has commercial
substance by considering the extent to which its future cash
flows are expected to change as a result of the transaction.
An exchange transaction has commercial substance if:
(a) the
configuration (risk, timing and amount) of the cash flows of
the asset received differs from the configuration of the cash
flows of the asset transferred; or
(b) the
entity-specific value of the portion of the entity’s
operations affected by the transaction changes as a result of
the exchange; and
(c) the difference
in (a) or (b) is significant relative to the fair value of the
assets exchanged.
For the purpose of
determining whether an exchange transaction has commercial
substance, the entity-specific value of the portion of the
entity’s operations affected by the transaction shall
reflect post-tax cash flows. The result of these analyses may
be clear without an entity having to perform detailed
calculations.
26. The fair value
of an asset for which comparable market transactions do not
exist is reliably measurable if (a) the variability in the
range of reasonable fair value estimates is not significant
for that asset or (b) the probabilities of the various
estimates within the range can be reasonably assessed and used
in estimating fair value. If an entity is able to determine
reliably the fair value of either the asset received or the
asset given up, then the fair value of the asset given up is
used to measure the cost of the asset received unless the fair
value of the asset received is more clearly evident.
27. The cost of an
item of property, plant and equipment held by a lessee under a
finance lease is determined in accordance with IAS 17 Leases.
28. The carrying
amount of an item of property, plant and equipment may be
reduced by government grants in accordance with IAS 20 Accounting
for Government Grants and Disclosure of Government Assistance.
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