Ind AS 16 Property, Plant and Equipment: A Practitioner Guide for FY 2026-27
Ind AS 16 (Property, Plant and Equipment) is the Indian Accounting Standard that prescribes how companies must account for tangible fixed assets held for use over more than one period.
The Ministry of Corporate Affairs (MCA) notified Ind AS 16 via the Companies (Indian Accounting Standards) Rules, 2015. It became mandatory from 1 April 2016 for Phase I entities. Ind AS 16 replaced AS 10 (Fixed Assets) and AS 6 (Depreciation Accounting) for Ind AS-compliant companies.
For FY 2026-27, the most significant recent development is the amendment on proceeds from items produced before an asset is ready for intended use. This change impacts capitalisation practices across manufacturing and infrastructure sectors.
Ind AS 16 at a Glance
Ind AS 16 sets out the principles for recognising and measuring property, plant and equipment (PPE), ensuring that financial statements reflect the true investment in tangible fixed assets. The standard primarily targets finance teams in listed companies and statutory auditors responsible for compliance with Indian Accounting Standards.
| Field | Value |
|---|---|
| Standard Number | Ind AS 16 |
| Full Name | Property, Plant and Equipment |
| Issuing Body | ICAI (Accounting Standards Board) |
| Notified By | MCA, Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015 |
| Effective Date | 1 April 2015 (voluntary), 1 April 2016 (mandatory Phase I) |
| Supersedes | AS 10 (Fixed Assets) and AS 6 (Depreciation Accounting) for Ind AS-applicable entities |
| Equivalent Standard | AS 10 ↔ Ind AS 16 ↔ IAS 16 |
| Applies To | All companies required to follow Indian Accounting Standards under the MCA roadmap. Ind AS 16 governs all property, plant, and equipment except items covered by other Ind AS (held-for-sale, biological assets, etc.). |
What is Ind AS 16: Property, Plant and Equipment?
Ind AS 16 defines how companies must recognise and measure tangible assets used in production or supply of goods or services, rental to others or administrative functions when those assets are expected to be used over more than one period. The standard requires initial recognition at cost followed by either a cost model or a revaluation model as an accounting policy.
The Institute of Chartered Accountants of India introduced Ind AS 16 to align Indian financial reporting with global standards set by the International Accounting Standards Board through IAS 16. This move replaced legacy guidance under erstwhile Indian GAAP, AS 10 (Fixed Assets), and brought Indian practice in line with IFRS convergence objectives.
Finance controllers in listed companies, auditors conducting statutory audits under SA 700, CFOs of large corporates and CA students preparing for exams all rely on this standard as a foundational reference.
Objective of Ind AS 16
The objectives of Ind AS 16 are:
- Prescribe the accounting treatment for property, plant and equipment so that users can discern information about an entity’s investment in such assets and changes in that investment.
- Specify principles for the recognition of PPE, determination of carrying amounts and depreciation charges as well as impairment losses.
- Establish disclosure requirements that enable users to understand the entity’s investment in PPE and related accounting policies.
These objectives ensure that financial statements provide a true and fair view as required by Section 129 of the Companies Act, 2013. Accurate reporting underpins investor confidence by transparently reflecting capital allocation to long-term tangible assets.
Who Must Apply Ind AS 16?
Entities covered, applicability table
Ind AS 16 applies to all companies required to adopt Indian Accounting Standards per MCA notification. The phased roadmap covers:
| Entity Type | Applicability Timeline |
|---|---|
| Listed companies | Phase I, mandatory from FY 2016-17 |
| Unlisted companies > Rs 250 crore net worth | Phase II, mandatory from FY 2017-18 |
| NBFCs meeting net worth thresholds | Phase III, staggered adoption |
Companies voluntarily opting into the Ind AS regime must also comply with this standard from their first year of adoption.
Scope exclusions
Ind AS 16 does not apply to:
- PPE classified as held for sale under Ind AS 105
- Biological assets related to agricultural activity within Ind AS 41 (other than bearer plants)
- Recognition and measurement of exploration and evaluation assets within Ind AS 106
- Mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources
- Investment property within the scope of Ind AS 40
When the standard does not apply
If an item falls within any exclusion above:
- PPE held-for-sale is governed by Ind AS 105 Held-for-Sale
- Biological assets are covered under [Ind AS 41 Agriculture]
- Exploration/evaluation assets follow [Ind AS 106]
- Mineral rights/reserves have separate guidance outside this standard
- Investment property applies Ind AS 40 Investment Property
Key Definitions under Ind AS 16
| Term | Definition |
|---|---|
| Property, plant and equipment (PPE) | Tangible items used in production/supply of goods or services or admin purposes over more than one period. |
| Cost | Cash paid or fair value exchanged to acquire or construct an asset at acquisition date. |
| Carrying amount | Recognised amount after deducting accumulated depreciation/impairment losses from cost. |
| Depreciation | Systematic allocation of depreciable amount over an asset’s useful life. |
| Useful life | Period asset expected to be available or units expected from it during use by entity. |
| Component approach | Each significant part must be depreciated separately if its cost is material relative to total cost. |
| Bearer plant | Living plant used in agricultural produce expected to bear produce over multiple periods; rarely sold except as scrap. |
Recognition and Measurement under Ind AS 16
When to recognise
An item qualifies as property, plant or equipment when it is probable that future economic benefits will flow to the entity from its use or disposal; additionally, its cost must be measurable reliably. Recognition occurs when control passes, typically at delivery or installation per contract terms.
Initial measurement
On initial recognition, PPE is measured at cost. Cost includes purchase price net of trade discounts plus directly attributable costs necessary to bring the asset into working condition at its intended location. Examples include site preparation expenses; delivery; installation; professional fees; testing costs; initial estimates of dismantling/restoration obligations; import duties; non-refundable taxes.
Borrowing costs directly attributable to acquisition/construction are capitalised if criteria under Ind AS 23 Borrowing Costs are met.
**Formula:**
Initial Cost = Purchase Price + Directly Attributable Costs + Dismantling/Restoration Provision + Capitalised Borrowing Costs
Routine maintenance after commissioning is expensed unless it enhances future benefits beyond original performance standards.
Subsequent measurement
After initial recognition:
The entity selects either:
Cost model, carry asset at cost less accumulated depreciation/impairment.
Revaluation model, carry asset at fair value less accumulated depreciation/impairment post-revaluation date.
The chosen policy applies consistently across each class of PPE, e.g., all office buildings must follow either cost or revaluation model but not a mix.
Revaluations require reliable fair value measurement, typically via independent valuer, and must be performed regularly enough so carrying amount does not differ materially from fair value at reporting date. Increases go directly into Other Comprehensive Income unless reversing prior decreases recognised in profit/loss; decreases first offset previous OCI surplus then hit profit/loss.
Component depreciation is mandatory, see below.
The Component Approach to Depreciation (Mandatory)
Ind AS 16 mandates separate depreciation schedules for parts of an asset whose costs are significant relative to total asset value if they have different useful lives or consumption patterns (“component approach”). For example:
- Aircraft engines depreciate differently from airframes.
- Kiln linings may require replacement every few years while kiln bodies last decades.
- Power plants split turbines from boilers if materiality threshold met.
Each component’s useful life/residual value is reviewed annually at year-end; changes are treated prospectively per change-in-estimate rules under [Ind AS 8].
On derecognition, when control ceases via disposal/scrapping, the carrying amount is removed from books with gain/loss recognised in profit/loss statement except where another standard requires otherwise.
Recent amendments clarify that proceeds from selling items produced before an asset reaches intended use are credited directly to profit/loss, not offset against PPE cost, from FY 2022-23 onwards per MCA notification dated March 2022.
Impairment testing applies where indicators exist per Ind AS 36 Impairment of Assets.
Worked Examples on Ind AS 16
Example 1: Capitalisation of major spares under component approach
Maharashtra Cement Ltd acquires a kiln costing Rs 80 crore on April 1st, 2025; included is a refractory lining valued at Rs 12 crore requiring replacement every four years while kiln body lasts twenty years without residual value.
Computation Table
| Component | Amount | Depreciation Method / Useful Life |
|---|---|---|
| Kiln Body | Rs 68 crore | Straight-line over twenty years |
| Refractory Lining | Rs 12 crore | Straight-line over four years |
Annual depreciation:
Kiln body = Rs 68 crore / twenty = Rs 3.4 crore/year
Lining = Rs 12 crore / four = Rs 3 crore/year
Total annual charge years one-four = Rs 6.4 crore
Journal Entries
On purchase:
Dr PPE, Kiln Body Rs 68 crore
Dr PPE, Refractory Lining Rs 12 crore
Cr Bank/Payable Rs 80 crore
Annually:
Dr Depreciation Rs 6.4 crore
Cr Accumulated Depreciation Rs 6.4 crore
Example 2: Subsequent measurement using revaluation model
Sundaram Real Estate Pvt Ltd purchases an office building for Rs 50 crore on April 1st, 2020. As on March 31st, 2026 carrying amount under cost model would be Rs 35 crore but independent valuer certifies fair value at Rs 65 crore.
Computation Table
| Item | Amount | Treatment |
|---|---|---|
| Carrying amount (cost model) | Rs 35 crore | Pre-revaluation balance |
| Fair value | Rs 65 crore | Valuer certified |
| Revaluation surplus | Rs 30 crore | Credited to OCI/equity |
Journal Entries
Dr PPE, Office Building Rs 30 crore
Cr Revaluation Surplus (OCI) Rs 30 crore
From next year onwards depreciation will be based on revalued figure i.e., Rs 65 crore allocated over remaining useful life per Para 31-38 requirements.
Disclosure must state date/methodology/valuer details as per Para 77.
Disclosure Requirements under Ind AS 16
Disclosures under Ind AS 16 are critical for compliance with Schedule III to the Companies Act, 2013. They ensure transparency around the valuation, depreciation, and movement of property, plant and equipment (PPE). The standard prescribes granular disclosures to help users understand the entity’s asset base and accounting policies.
| Item | Requirement | Para Reference |
|---|---|---|
| Measurement bases used in determining gross carrying amount | Disclose for each class of PPE | Para 73(a) |
| Depreciation methods used | Disclose method for each class (straight-line, WDV, units of production) | Para 73(b) |
| Useful lives or depreciation rates used | Disclose for each class | Para 73(c) |
| Gross carrying amount and accumulated depreciation at beginning and end of period | Reconciliation of movements | Para 73(d) |
| Reconciliation showing additions, disposals, acquisitions through business combinations, revaluations, impairment losses recognised/reversed, depreciation, foreign currency translation differences, and other changes | Detailed movement schedule | Para 73(e) |
| Existence and amounts of restrictions on title and PPE pledged as security | Disclose as security for liabilities | Para 74(a) |
| Amount of expenditure recognised in carrying amount in the course of construction | Disclose CWIP additions | Para 74(b) |
| Contractual commitments for acquisition of PPE | Disclose committed but not yet incurred | Para 74(c) |
| Compensation from third parties for PPE impaired, lost, or given up | Disclose if not separately presented in P&L | Para 74(d) |
| Revaluation details | Effective date, whether independent valuer involved, methods and assumptions, carrying amount under cost model, revaluation surplus | Para 77 |
Auditors must ensure that all required disclosures under Ind AS 16 are complete and accurate as part of their reporting responsibilities under SA 700.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Failure to apply component approach to assets where major parts have significantly different useful lives.
- Incorrect capitalisation of post-acquisition costs that should be recognised as expense (e.g., routine maintenance treated as enhancement).
- Non-recognition of estimated dismantling and restoration costs in initial cost of PPE.
- Failure to review useful life and residual value at each year-end and adjust prospectively.
- Inconsistent application of cost model and revaluation model across different classes of PPE.
- Incorrect treatment of proceeds from selling items produced before an asset is in the location and condition for intended use (per the 2024 amendment, these are recognised in P&L not against PPE cost).
Industry application notes
In power and infrastructure sectors, the component approach materially affects accounting. Power plants must maintain detailed fixed-asset registers identifying significant components, often those above a 10% materiality threshold. Auditors typically request this documentation during statutory audits.
Aviation companies face granular asset tracking. Aircraft engines, airframes, landing gear, and major rotables are depreciated over different useful lives. Heavy maintenance overhauls are capitalised separately and depreciated until the next overhaul cycle.
Manufacturing companies must distinguish between enhancements (capitalised if they increase useful life or capacity) and routine maintenance (expensed). Detailed documentation supporting these judgements is critical for audit defence.
Ind AS 16 vs AS 10 vs IFRS: Key Differences
The table below compares Ind AS 16 with AS 10 (revised) and IFRS (IAS 16), highlighting key differences relevant for Indian companies transitioning between frameworks or reporting internationally.
| Aspect | AS | Ind AS | IFRS |
|---|---|---|---|
| Component approach | Required under revised AS 10 (2017 onwards) | Required since adoption | Required (IAS 16) |
| Subsequent measurement | Cost model (revaluation also permitted under revised AS 10) | Cost model or revaluation model | Same as Ind AS |
| Bearer plants | Treated as PPE under revised AS 10 | Within scope of Ind AS 16 | Within scope of IAS 16 |
| Major spare parts | Capitalised under revised AS 10 if useful life exceeds 12 months | Capitalised under Ind AS 16 if criteria met | Same as Ind AS |
| Decommissioning costs | Required under revised AS 10 | Required under Ind AS 16 | Required under IAS 16 |
| Proceeds from items produced during testing | Capitalisable under specific conditions | Recognised in P&L; no offset against PPE cost (2024 amendment) | Same as Ind AS |
India’s carve-outs from IFRS for this topic are minimal post-2017. The most significant difference is historical: legacy Indian GAAP did not mandate component accounting or require annual review of useful lives. Since convergence with IAS 16 via Ind AS 16, Indian requirements closely align with global practice.
Latest Amendments to Ind AS 16 (FY 2026-27)
- Property, Plant and Equipment, Proceeds before Intended Use, MCA Notification dated 23 March 2022, effective annual reporting periods beginning on or after 1 April 2022.
The most recent amendment clarifies that proceeds from selling items produced while bringing an asset to its intended use must be recognised directly in profit or loss. This change aligns Indian practice with IAS 16 and eliminates previous diversity in treatment across industries.
Related Standards You Should Know
- [Ind AS 36](/ind-as-36-impairment-of-assets/), Impairment testing of PPE follows Ind AS 36 when indicators exist.
- [Ind AS 23](/ind-as-23-borrowing-costs/), Borrowing costs directly attributable to a qualifying asset are capitalised.
- [Ind AS 105](/ind-as-105-held-for-sale-discontinued-operations/), PPE meeting held-for-sale criteria are reclassified out of Ind AS 16.
- [Ind AS 40](/ind-as-40-investment-property/), Investment property follows Ind AS 40, not Ind AS 16.
- [AS 10](/as-10-property-plant-and-equipment/), Equivalent PPE standard for non-Ind AS companies (revised AS 10 since FY 2017-18).
Need Help with Ind AS 16 Compliance?
Patron Accounting LLP supports listed companies and mid-market private limited entities with end-to-end compliance on Ind AS 16 Property, Plant and Equipment. Our team combines technical expertise with practical audit experience across manufacturing, infrastructure, aviation and service sectors.
Our services include:
- Statutory Audit
- Ind AS Advisory
- Financial Reporting & Schedule III
- Disclosure Review
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
All companies required to follow Indian Accounting Standards per the Ministry of Corporate Affairs roadmap must comply with Ind AS 16. This includes listed companies, large unlisted companies exceeding net worth thresholds specified by MCA notifications, certain NBFCs, and voluntary adopters.
The component approach requires entities to identify significant parts of an asset that have different useful lives or consumption patterns. Each such part must be depreciated separately. This ensures more accurate allocation of depreciation expenses over each component’s economic life.
Under the cost model in Ind AS 16, assets are carried at historical cost less accumulated depreciation and impairment losses. The revaluation model allows assets to be measured at fair value at specified intervals. Entities must apply their chosen policy consistently to an entire class of assets.
Costs eligible for capitalisation include purchase price net of discounts; directly attributable costs such as site preparation; delivery; installation; professional fees; initial estimates for dismantling/restoration; import duties; non-refundable taxes; and qualifying borrowing costs per Ind AS 23 Borrowing Costs criteria.
Useful life and residual value must be reviewed at least annually at each financial year-end per Ind AS 16 requirements. Any changes based on new information about usage patterns or technological developments must be accounted for prospectively as a change in accounting estimate.
Major spare parts qualify as property, plant or equipment if they are expected to be used over more than one period or can only be used with a specific item. If these criteria are met, they are capitalised rather than expensed immediately upon purchase.
From FY 2022-23 onwards per MCA notification dated March 2022, proceeds from selling items produced while bringing an asset to its intended use must be credited directly to profit or loss rather than offsetting the cost of property, plant or equipment on initial recognition.
Both standards now require component accounting and allow either cost or revaluation models post-revision. However, only post-amendment does Ind AS 16 require proceeds from pre-use production to go directly into profit/loss instead of reducing asset cost, a key difference since FY 2022-23.
Schedule III requires detailed disclosure including movement schedules showing opening balances; additions; disposals; depreciation charged; impairment losses/reversals; closing balances by class; measurement bases adopted; restrictions on title; pledged assets; contractual commitments; CWIP additions; compensation received; revaluation details if applicable.
Yes. Impairment testing for property, plant & equipment is governed by Ind AS 36 Impairment of Assets. Entities must assess indicators at each reporting date. If impairment exists, recoverable amount falls below carrying value, a loss is recognised following procedures in that standard.
About This Article
Reviewed by CA & CS Team · Patron Accounting LLP
Technical reviewer: CA Sundram Gupta, FCA
Last reviewed: 2026-05-02
Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015) · IFRS Foundation