What does IAS 16 primarily govern?

IAS 16 primarily governs Property, Plant and Equipment (PPE). This International Accounting Standard outlines the accounting treatment for tangible fixed assets, which are essential for a company’s operations and contribute to generating revenue.

The standard details the recognition, measurement, and depreciation of these assets, which includes criteria for determining when to capitalize costs versus expensing them. It also provides guidance on how to determine the carrying amount of an asset, the method of depreciation, and the impairment of an asset, ensuring that the financial statements reflect the value and lifespan of these physical resources accurately.

Furthermore, IAS 16 emphasizes the importance of presenting a true and fair view of the company’s financial position by ensuring that the values assigned to property, plant, and equipment accurately reflect their condition and usefulness over time. This foundational understanding of PPE is essential for accountants and financial professionals to produce compliant and reliable financial statements.