AASB 116 Property, Plant and Equipment — A Plain-English Summary

AASB 116 Property, Plant and Equipment is the Australian Accounting Standard that governs how an entity’s own operating assets — offices, factories, depots, machinery — are measured, depreciated and disclosed in its financial statements. It is the property standard auditors and CFOs reach for most often, and the one most often misread on two points: how often assets must be revalued, and which disclosures a revalued asset triggers. This is the plain-English summary we give our own financial reporting clients, with the load-bearing paragraphs quoted verbatim from the current compiled standard.

All quotes below are from Compiled AASB 116 (Compilation No. 6, compilation date 31 December 2022), the version in force for annual periods beginning on or after 1 January 2023 and still current as at July 2026.

What is AASB 116?

AASB 116 Property, Plant and Equipment is the Australian Accounting Standard that prescribes the accounting for property, plant and equipment an entity holds for its own use — recognition, the choice between the cost and revaluation models, depreciation, and disclosure. It incorporates the international standard IAS 16, with additional Australian paragraphs (prefixed “Aus”) that mainly affect not-for-profit and public sector entities. Property held to earn rentals or for capital appreciation is not covered by AASB 116 — that is AASB 140, and the way fair value itself is measured sits in AASB 13.

Para 6 defines the asset class precisely: property, plant and equipment “are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period.” The dividing line from AASB 140 is purpose: own-use versus held-for-return.

Recognition and cost

The recognition test is in para 7: the cost of an item “shall be recognised as an asset if, and only if: (a) it is probable that future economic benefits associated with the item will flow to the entity; and (b) the cost of the item can be measured reliably.” An item that qualifies “shall be measured at its cost” (para 15).

Cost (para 16) comprises three things: the purchase price (including import duties and non-refundable taxes, net of trade discounts); “any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management”; and the initial estimate of dismantling and site-restoration obligations. Directly attributable costs (para 17) include site preparation, delivery and handling, installation, testing, and professional fees. What is excluded (para 19): costs of opening a new facility, introducing a new product, entering a new location or market (including staff training and advertising), and general overheads. Capitalisation stops once the asset “is in the location and condition necessary for it to be capable of operating in the manner intended by management” (para 20).

Ongoing repairs and maintenance are not capitalised — para 12 puts “the costs of the day-to-day servicing of the item” straight to profit or loss. But the cost of replacing a part is capitalised if it meets the recognition test, and the replaced part is derecognised (para 13).

The two measurement models

After recognition, para 29 forces a policy choice applied to “an entire class of property, plant and equipment”:

• Cost model (para 30): the asset “shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.”
• Revaluation model (para 31): an asset “whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.”

The “entire class” rule (para 36) is the guardrail against cherry-picking: revalue one building and you revalue the whole class it belongs to. Para 37 lists the classes — land; land and buildings; machinery; ships; aircraft; motor vehicles; furniture and fixtures; office equipment; bearer plants — so an entity can, legitimately, hold buildings at revalued amounts while holding motor vehicles at cost.

How often must you revalue? (the paragraph everyone misquotes)

This is the single most misstated point in AASB 116. There is no three-year rule. The operative requirement is in para 31: “Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.”

The “three or five years” figure people cite comes from para 34, and it is commentary, not a rule: “Some items of property, plant and equipment experience significant and volatile changes in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years.”

Read together: the standard sets a materiality outcome, not a calendar. A volatile class may need annual revaluation; a stable one may go three to five years — but the test is always whether the carrying amount has drifted materially from fair value at reporting date. This is exactly why some jurisdictions layer a fixed cycle on top for their own entities (see our survey of council asset revaluation rules by state) — the standard itself imposes none.

Where revaluation gains and losses go

For for-profit entities the treatment is per-asset and asymmetric:

• Increases (para 39): “recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus” — except to the extent they reverse a previous decrease of the same asset booked to profit or loss, which goes back through profit or loss.
• Decreases (para 40): “recognised in profit or loss” — except to the extent of any credit balance in the revaluation surplus for that same asset, which is taken to other comprehensive income.

So a first-time uplift builds a revaluation surplus in equity; a later fall first eats that surplus, then hits the P&L. When the asset is eventually derecognised, the surplus may be transferred directly to retained earnings, never through profit or loss (para 41).

Not-for-profit entities work differently — Aus39.1, Aus40.1 and Aus40.2 apply the increase/decrease logic at the class level and offset within a class (but not across classes). If your entity is a NFP or public sector body, those Aus paragraphs replace the per-asset treatment above.

Depreciation

AASB 116 requires component depreciation (para 43): “Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.” The classic example is an aircraft’s airframe and engines depreciated on different lives.

The depreciable amount — cost (or revalued amount) less residual value — “shall be allocated on a systematic basis over its useful life” (para 50), and the depreciation method “shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed” (para 60). Straight-line, diminishing balance and units-of-production are all permitted (para 62); a revenue-based method is not (para 62A). Residual value, useful life (para 51) and the depreciation method (para 61) must each be reviewed at least at every financial year-end, with changes treated as changes in estimate under AASB 108.

Two rules catch people out. Depreciation begins when the asset “is available for use” — not when it is first used — and does not stop just because the asset goes idle (para 55). And land is not depreciated: para 58 treats land and buildings as separable even when bought together, land having “an unlimited useful life” (quarries and landfill aside), buildings a limited one. A rise in land value never reduces the building’s depreciable amount.

Disclosure — and the revaluation disclosures specifically

For each class, para 73 requires the measurement bases, depreciation methods, useful lives or rates, gross carrying amount and accumulated depreciation at both ends of the period, and a full reconciliation of the carrying amount (additions, disposals, revaluation movements, impairment, depreciation, and so on).

If assets are carried at revalued amounts, para 77 adds — “in addition to the disclosures required by AASB 13” — the effective date of the revaluation; whether an independent valuer was involved; for each revalued class, the carrying amount that would have been recognised under the cost model; and the revaluation surplus with its movement for the period. (Sub-paragraphs 77(c) and (d) were deleted when AASB 13 took over fair value disclosure, so a revalued asset draws its measurement-technique and fair-value-hierarchy disclosures from AASB 13, not AASB 116.)

That single line in para 77(b) — whether an independent valuer was involved — is why revaluation-model entities engage professional valuers: the involvement is a disclosable fact, and an independent asset or plant and equipment valuation is what supports both the number and the disclosure.

For-profit vs not-for-profit — the one distinction to get right

For a for-profit entity, complying with AASB 116 is equivalent to complying with IAS 16, and the per-asset revaluation treatment (paras 39–40) applies. Not-for-profit and public sector entities pick up the Aus paragraphs: initial measurement at fair value where consideration is significantly below fair value (Aus15.1), class-level revaluation treatment (Aus39.1/40.1/40.2), and relief from the cost-model-comparison disclosure (Aus77.1). Separately, AASB 2022-10 brought fair-value-measurement relief for certain non-financial assets of NFP public sector entities from 1 January 2024 — but that amendment lives in AASB 13, not AASB 116, so you won’t find it in the AASB 116 text.

Methodology

Every quotation is taken verbatim from Compiled AASB 116 Property, Plant and Equipment (Compilation No. 6, compilation date 31 December 2022; Authorised Version F2023C00192), read directly from the AASB standards portal, with paragraph numbers as shown. This is the current compilation as at July 2026 — no later compilation is registered on the Federal Register. Deleted paragraphs (32–33, and 77(c)–(d)) are not cited as operative. Where for-profit and not-for-profit treatments diverge, both are identified; the for-profit paragraphs (39–40) apply to ordinary commercial entities.

Frequently asked questions

Does AASB 116 require property to be revalued every three years?

No. AASB 116 sets no fixed interval. Para 31 requires revaluations “with sufficient regularity” that the carrying amount does not differ materially from fair value at reporting date, and para 34’s mention of “every three or five years” is commentary on stable-value assets, not a rule. Volatile assets may need annual revaluation; the test is always materiality, not the calendar.

What is the difference between the cost model and the revaluation model in AASB 116?

Under the cost model (para 30) an asset is carried at cost less accumulated depreciation and impairment. Under the revaluation model (para 31) it is carried at fair value at the revaluation date less subsequent depreciation and impairment, provided fair value can be measured reliably. The choice is a policy applied to an entire class (para 29), so an entity can hold buildings at revalued amounts while holding vehicles at cost.

Where do revaluation gains and losses go under AASB 116?

For a for-profit entity, a revaluation increase goes to other comprehensive income and accumulates as a revaluation surplus in equity (para 39), while a decrease goes to profit or loss (para 40) — each subject to reversing any prior movement on the same asset. Not-for-profit entities apply this at class level under Aus39.1 and Aus40.1.

Is land depreciated under AASB 116?

No. Para 58 treats land as having an unlimited useful life (with narrow exceptions such as quarries and landfill sites), so land is not depreciated even when it is bought together with a building. The building is depreciated over its own limited useful life, and an increase in the land’s value does not change the building’s depreciable amount.

Does AASB 116 require an independent valuer?

It does not mandate one, but para 77(b) requires an entity carrying assets at revalued amounts to disclose whether an independent valuer was involved. That disclosure, plus the need for a reliable, defensible fair value, is why revaluation-model entities typically engage a professional valuer.

Sources

• AASB 116 Property, Plant and Equipment — AASB standards portal (Compiled AASB 116, Compilation No. 6, 31 December 2022)
• Federal Register of Legislation — AASB 116 versions

This article is general information about an accounting standard, not accounting or audit advice. How AASB 116 applies depends on your entity type (for-profit vs not-for-profit), asset classes and accounting policies — confirm your treatment with your auditor or adviser.

See also

• AASB 13, 116 and 140 Summarised — the three property standards side by side — how AASB 116 fits with AASB 13 (fair value) and AASB 140 (investment property)
• Council Asset Revaluation Requirements by State — how public-sector entities layer a fixed cycle over the AASB 116 “sufficient regularity” test
• Financial Reporting Valuations — audit-ready fair value reports under AASB 13, 116 and 140
• Asset Valuations and Plant & Equipment Valuations — the valuations that support revaluation-model carrying amounts
• Capital Improved Value vs Market Value — statutory valuation bases, a separate concept from accounting fair value

Last verified: 20 July 2026 against Compiled AASB 116 (Compilation No. 6, 31 December 2022). Accounting standards are reissued as the AASB amends them — this article is reviewed against the current compilation.