After the introduction of law about Financial Accounting and Audit in Georgian legal framework, IFRS became a critically crucial element. Coming from the fact that general awareness of these standards is very low, 2017 will be a tough challenge for accountant and financial reporting specialists.

From International Financial Reporting Standards (IFRS), we would like to pay special attention to IAS 16 which concentrates on property and plant & equipment (PPE). This standard provides detailed guideline on recognition, accounting and overall management and disclosure requirements for fixed assets. Based on IAS 16 each and every unit of fixed assets which satisfies the asset recognition criteria will be initially measured at cost. However, the deemed cost (amount used as a surrogate for cost or depreciated cost at a given date) optional exemption permits the carrying amount of an item of property, plant & equipment to be measured at the date of transition at deemed cost. When the deemed cost is used to establish the cost of fixed assets it becomes new IFRS cost basis at that date.

In contrast to current way of accounting and reporting of fixed assets, IFRS requires to choose further valuation of property, plant & equipment between either cost or revaluation model. In case the fixed assets of the company are not engaged in tech heavy activities where the market conditions do change very frequently, we do recommend to continue to use cost model due to its simplicity and less costs of implementation and monitoring in comparison to the revaluation model.

As the next step, it is important to analyze the property, plant & equipment on item by item basis and combine these assets into different aggregate classes, such are: land, buildings, machinery, office equipment, construction in progress, etc.

Furthermore, the classes should be divided into smaller sub categories. For example, office equipment class might be divided into computers, scanners, printers, tables, shelves, etc.

In the meantime, you should consider the appropriate depreciation method for your company and with the assistance of the qualified professionals, estimate useful lives of each sub category. Last but not least, for IFRS transformation purposes you should recalculate accumulated depreciation and current period depreciation expense for each class.

Moreover, please take into consideration that in relation to property, plant & equipment you have the following disclosure requirements in the notes of the financial statements:

  1. The basis of calculation of initial cost of fixed assets
  2. The method used to calculate depreciation expense
  3. Estimated useful lives of classes
  4. A reconciliation of the carrying amount at the beginning and end of the accounting period
  5. The existence and amounts of restrictions on title, and property, plant & equipment pledged as security for liabilities
  6. The amount of contractual commitments for the acquisition of fixed assets

In order to start the necessary works concerning property, plant & equipment transformation it is important to: first of all, create item by item fixed assets registrar. Also, please review the financial statements of the companies which operate in similar industry (but these financial statements shall be prepared in accordance to IFRS) and analyze which further valuation methods are used by your peer companies or the industry in general.

As all management estimates, please note that useful lives of fixed assets classes shall be reviewed at least annually. In case of significant deviation, the useful lives shall be amended accordingly.

As a result, by comparing the IFRS fixed asset figures to existing numbers, you will arrive at the IFRS adjustment which will have impact of both Statement of Financial Position and Statement of Profit & Loss.



Mariam Koyava

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