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• Major inspection cost is recognised in the carrying amount of the item of property, plant, and equipment as a replacement.
– if the recognition criteria are satisfied
-Necessary for continued operation< Question >:
1-When said “recognised as replacement” does it mean that previous inspection cost already recognised and depreciated should be derecognised first ; incase carrying value in respect of previous inspection is still in accounts?
2-If entity knows in ADVANCE while buying the asset that major inspections will be carried out that will be necessary for its continued operation.should Still those inspections be capitalised?
3- Gets confused due to these terms,please give one example of them:
-item of PPE
-class of assets
-part of an item of PPEHi,
1. Yes we need to derecognise anything that has been previously included as the new cost is replacing it.
2. Yes the inspection is separated out initially from the total cost of the asset and depreciated separately over the time to the inspection.
3. An item of PPE is a specific bit of plant and machinery, so the machine that makes plates (say). Plant and machinery is a class of asset. Part of an item of PPE is a component part of plant and machinery, so the conveyor belt on the plate machine.
A)Basis:
As soon we bought the asset we must have been obliged to do inspection and if we could AVOID it that should not be part of asset .right?if we can’t avoid it , it must be liability like dismantling?
it seems like inspection is not an obligation from ias 16 perspective and it is an exception to other Expenses not capitalised.so is it a exception or there is a basis to capitalise it and not even providing provision?
B)Treatment:
for ist year inspection depreciation,we don’t incur inspection cost actually until the inspection day comes and so we take part of cost of asset that could be attributed to inspection ? and for other years actual inspection cost incurred?
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