NIF C-6 refers to “Financial Reporting Standard C-6: Property, Plant and Equipment.” This standard is part of the Financial Reporting Standards in Mexico and addresses the accounting treatment of property, plant and equipment.
Here are some key points about NIF C-6:
Initial Recognition:
Property, plant and equipment should be initially recognized at cost. This cost includes all expenses necessary to put the asset into working order, such as purchase, installation and start-up costs.
Post-assessment:
After initial recognition, property, plant and equipment may be valued at cost less accumulated depreciation and impairment losses. Alternatively, the revaluation model may be chosen, in which assets are valued at fair value less accumulated depreciation.
Depreciation:
The standard states that assets must be depreciated systematically over their estimated useful life. Depreciation must reflect wear and tear and the consumption of the asset's economic benefits.
Deterioration:
IFRS C-6 requires that property, plant and equipment be assessed regularly for signs of impairment. If impairment is detected, an impairment loss must be calculated and recorded.
Disincorporation and Deregistration:
When an asset is sold, retired or is no longer expected to provide future economic benefits, it should be derecognized in the financial statements. The difference between the asset's carrying amount and the amount received from its sale is recognized as a gain or loss in profit or loss.
Revelation:
The standard requires that significant information about the nature and amounts of property, plant and equipment be disclosed in the financial statements. This includes the description of the assets, their useful lives, the method of depreciation, and impairment losses.
NIF C-6 is essential to ensure that fixed assets are reported accurately and reflect their true value in the financial statements.
Case Study: Initial Recognition of an Imported Asset
Approach
The company "ABC Manufacturing SA de CV" decides to acquire a new production machine manufactured in China for its plant in Ciudad Juárez.
The total cost associated with the acquisition and installation of the machine is $1,200,000 MXN.
This cost includes the purchase price, transportation, insurance, customs duties, and installation costs.
Application of NIF C-6:
Initial Recognition:
- Total Asset Cost: The total cost of the asset includes all expenses necessary to put the machine into working order. This includes:
- Machine purchase price: $1,000,000 MXN
- Cost of transportation and insurance from China to Ciudad Juarez: $100,000 MXN
- Customs duties and import taxes: $50,000 MXN
- Installation and commissioning cost: $50,000 MXN
- Initial Recognized Cost:
Initial Cost = 1,000,000 + 100,000 + 50,000 + 50,000 = 1,200,000 MXN
Conclusions
NIF C-6 Property, Plant and Equipment is essential for the correct recording and recognition of the real value of our fixed assets. We recommend our readers to have accounting policies related to property, plant and equipment to ensure correct recognition in the financial statements.
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