Answer to Question #208847 in Accounting for Hasalama

Question

scenarios that can lead to a deviation in the accounting standard IAS 16

Answer 1

Solution:

Accounting standard IAS 16 deals with Property Plant and Equipment. It outlines the accounting treatment for the majority of types of property, plant, and equipment.

Property, plant, and equipment are initially measured at its cost, which includes its purchase price, taxes, and freight charges, any costs directly attributable to bringing the asset to full operation, and relocation costs.

The deviation may occur at a time when the Property, plant, and equipment may be measured at their fair values instead of their costs. Another deviation is when income is generated during the initial installation of the assets. When that happens, in most instances, the income generated is deducted from the cost of the assets when determining the actual cost of the asset.

Similarly, the residual value of the asset may increase or decrease as a result of revaluations of the assets, therefore, a change in accounting estimate will be necessary as IAS 16 recognizes such changes and therefore, no need to adjust previously recorded depreciation charge in the financial statements which is a deviation.