IAS 16 removes the minimum value threshold criteria for recognizing an item as property, plant, and equipment, meaning this will increase the total asset balance currently reported on the financial statements.
Revaluation Model – if applied, it may increase or decrease the carrying amount of the entity’s property, plant, and equipment to reflect the fair value at the revaluation date. The impact of the revaluation model is presented in other comprehensive income (as required under IAS 1 – Presentation of Financial Statements). Fair value measurements are assessed using the valuation techniques described in IFRS 13 – Fair Value Measurement.
By applying IAS 16, an asset is not recognized at an amount higher than its recoverable amount (the recoverable amount is the higher of (a) fair value less costs to sell and (b) value in use).
The accounting policies for depreciation expenses and other tangible assets currently recorded as prepaid expenses under VAS will change when applying IAS 16 – Property, Plant and Equipment.
1. Key Issues to Consider When Implementing the Transition
| Content | IFRS | VAS |
| IAS 16 and VAS 3 – Fixed Assets | ||
| Asset Recognition | No minimum threshold for recognizing fixed assets. | Current requirement for a minimum value of VND 30 million. |
| Depreciation of Asset Components | Specific requirement to depreciate major components of an asset separately. May differ between the main parts and other parts of the asset. | Guidance is limited regarding separating and tracking individual asset components. |
| Measurement After Initial Recognition | Allows the use of two models: Cost Model: The asset is presented at cost less accumulated depreciation and accumulated impairment losses. Revaluation Model: The asset is presented using the revaluation model, at fair value at the date of revaluation less subsequent depreciation and impairment, provided fair value can be measured reliably. | Only allows the cost model. Assets can only be revalued in certain limited cases. |
Definition and New Requirements of IAS 16 | ||
| Initial Measurement – Cost | An asset should initially be recognized at cost, including all costs necessary to bring the asset to the condition and location ready for use. If payment for the asset is deferred, interest determined by market rates must be recognized or excluded. | |
| Revaluation Policy | If revaluation increases the asset’s value, the increase is recognized in other comprehensive income and accumulated in equity under the “Revaluation Surplus,” unless it reverses a previous revaluation decrease recognized in profit or loss. If revaluation decreases the asset’s value, the decrease is recognized in profit or loss, except to the extent it reverses a previous revaluation surplus on the same asset. | |
| Revaluation Reserve Policy | When a revalued asset is derecognized, any remaining “Revaluation Surplus” may be transferred directly to “Retained Earnings,” or it may remain in equity under “Revaluation Surplus.” Transfers to retained earnings are not made through profit or loss. | |
| Asset Impairment | Property, plant, and equipment are required to be reviewed for impairment, and if necessary, recognized in the accounts. The asset’s carrying amount should not exceed its recoverable amount, which is the higher of (1) value in use and (2) fair value less costs to sell. Any claims from third parties for impairment losses or compensation are only recognized when realization is virtually certain. | |
| Disclosure | The standard requires detailed disclosures regarding the application of the revaluation model. | |
2. Key Actions to Implement
- The company must ensure that accounting staff are thoroughly trained on IAS 16.
- Select an accounting policy for each type of asset – cost model or revaluation model.
- The company must develop appropriate methods to measure the fair value of assets (including through professional valuation services) to meet the standard’s requirements.
- Develop forecasts to assess the impact on the financial position when applying the new standard.
