Under IAS 16, how are Property, Plant, and Equipment recognized initially?

Under IAS 16, Property, Plant, and Equipment (PPE) are recognized initially at cost. This includes not only the purchase price but also any directly attributable costs necessary to bring the asset to its intended use. This means that all expenditures that are essential for preparing the asset for its location and condition for use must be included in the cost.

For instance, the cost would encompass expenses such as delivery and installation fees, as well as any professional fees like architect or legal fees associated with the acquisition of PPE. This approach ensures that the financial statements reflect a consistent and comprehensive measure of the investment in property, plant, and equipment.

Recognizing assets at their initial cost not only aligns with the fundamental principles of accounting but also provides a reliable benchmark for subsequent valuation and depreciation. This method adheres to the objectivity and verifiability concepts, as costs can usually be evidenced by transactions.

Other options like fair value or market value do not apply for initial recognition under IAS 16, as fair value is often used in revaluation models rather than for initial recognition. Estimated value lacks a basis in actual transactional evidence, which could lead to inconsistencies.