What will change for measurement of property, plant and equipment?

ED 78: 

Background

The IPSASB has provided guidance on the implementation of commonly used measurement bases and the circumstances under which these bases should be used. These changes are proposed in ED 76 on Conceptual Framework Update: Chapter 7, Measurement of Assets and Liabilities in Financial Statements (locally issued as ED 188), and ED 77 on Measurement (locally issued as ED 189).

These changes impact ED 78 on Property, Plant and Equipment (published locally as ED 190). This article will explore the proposals in ED 78 related to measurement.

How does the proposals in ED 76 and ED 77 impact measurement of property, plant and equipment?

There are key proposals in ED 76 and ED 77 that impact on the measurement requirements of ED 78. These are as follows:

1. Initial measurement – non-exchange transaction
   

   Current requirement	Proposed requirement	Potential implications
   Initially measured at fair value.	Initially measured at deemed cost. Deemed cost is a current value measure that can be determined using three possible measurement techniques: the market approach, income approach and cost approach.	A greater range of potential valuation methods is available through three different techniques. Entities would need to apply judgement to determine which method is most appropriate, and it would largely depend on the information available.

    

2. Initial measurement – property, plant and equipment acquired in exchange for non-monetary assets
   

   Current requirement	Proposed requirement	Potential implications
   Initially measured at fair value as defined in current IPSAS literature.	Initially measured at fair value as defined in IFRS 13 on Fair Value Measurement.	Fair value as defined in IFRS 13 is appropriate for assets held for financial capacity, and considers the highest and best use of an asset. This may not be an appropriate measure for all assets acquired in this type of transaction in ED 78.

    

3. Subsequent measurement – current value model
   

   Current requirement	Proposed requirement	Potential implications
   An entity that chooses the revaluation model subsequently measures assets at fair value.	An entity that chooses the current value model subsequently measures assets at either current operational value or fair value. Additional disclosure requirements have been added when a current value measurement basis is used, based on the disclosure requirements of IFRS 13.	As noted above, fair value as defined in IFRS 13 is appropriate for assets held for financial capacity, and considers the highest and best use of an asset. Current operational value is appropriate for assets held for operational capacity and considers current use. An entity would need to make an assessment to determine which basis is most appropriate for the assets it has. Additional information would also be needed to meet the added disclosure requirements.

    

The Secretariat is interested in stakeholder’s views on the proposed measurement changes in ED 78 for the local environment.

Where can the ED be accessed and how can you provide comment?

ED 78 (locally published as ED 190) has been published on the ASB’s website and can be accessed here: https://www.asb.co.za/comment-on-proposals/.

A round table discussion  on 15 September 2021. Contact elizna@asb.co.za for an invitation. A recording of the education session is available on the ASB website:https://www.asb.co.za/asb-webcast-updates/

Written comment can be submitted to the Secretariat of the ASB at info@asb.co.za, by 1 October 2021.

Disclaimer

The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.