CVM Resolution 73: Approval of Consolidated Technical Pronouncement CPC 27 on Property, Plant and Equipment — CVM — BR

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL - CVM Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000

Approves the Consolidation of Technical Pronouncement CPC 27, of the Accounting Pronouncements Committee - CPC, which deals with property, plant and equipment.

THE PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION OF BRAZIL - CVM makes public that the Board, in a meeting held on December 1, 2021, based on §§ 3 and 5 of art. 177 of Law No. 6,404, of December 15, 1976, combined with items II and IV of § 1 of art. 22 of Law No. 6,385, of December 7, 1976, as well as arts. 5 and 14 of Decree No. 10,139, of November 28, 2019, APPROVED the following Resolution:

Art. 1. It is made mandatory for publicly-held companies to apply Technical Pronouncement CPC 27, which deals with property, plant and equipment, issued by the Accounting Pronouncements Committee - CPC, as consolidated in Annex “A” to this Resolution.

Art. 2. CVM Deliberation No. 583, of July 31, 2009, is revoked, from the effective date of this Resolution.

Art. 3. This Resolution enters into force on July 1, 2022.

Signed electronically by
Marcelo Barbosa
President

ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL PRONOUNCEMENT CPC 27
PROPERTY, PLANT AND EQUIPMENT
Correlation to International Accounting Standards – IAS 16

Summary Item
OBJECTIVE 1
SCOPE 2 – 5
DEFINITIONS 6
RECOGNITION 7 – 14
Initial costs 11
Subsequent costs 12 – 14
MEASUREMENT ON RECOGNITION 15 – 28
Elements of cost 16 – 22
Measurement of cost 23 – 28
MEASUREMENT AFTER RECOGNITION 29 – 66
Cost model 30
Revaluation model 31 – 42
Depreciation 43 – 62
Depreciable amount and depreciation period 50 – 59 Depreciation method 60 – 62 Impairment of assets 63 – 64 Reversal of impairment losses 65 – 66 DERECOGNITION 67 – 72 DISCLOSURE 73 – 79 TRANSITIONAL PROVISION 80

Objective

The objective of this Pronouncement is to establish the accounting treatment for property, plant and equipment, so that users of financial statements can discern information about the entity’s investment in its property, plant and equipment, as well as changes therein. The main points to be considered in the accounting for property, plant and equipment are the recognition of assets, the determination of their carrying amounts and the depreciation and impairment losses to be recognized in relation to them.

Scope
2. This Pronouncement shall be applied in the accounting for property, plant and equipment, except when another Pronouncement requires or permits a different accounting treatment.

This Pronouncement does not apply to:
(a) property, plant and equipment classified as held for sale in accordance with Technical Pronouncement CPC 31 – Non-Current Assets Held for Sale and Discontinued Operations; (b) biological assets related to agricultural activity that are bearer plants (see Technical Pronouncement CPC 29 – Biological Assets and Agricultural Produce). This Pronouncement applies to bearer plants, but does not apply to the products of those bearer plants; (c) recognition and measurement of exploration and evaluation assets (see Technical Pronouncement CPC 34 – Exploration for and Evaluation of Mineral Resources, when issued); (d) rights to explore and evaluate mineral resources such as oil, natural gas, coal, dolomite and similar non-renewable resources. However, this Pronouncement applies to property, plant and equipment used to develop or maintain the assets described in items (b) to (d).
(Eliminated).
An entity that uses the cost model for investment property, in accordance with CPC 28 – Investment Property, shall use the cost model of this Pronouncement for investment property held for own use.

Definitions
6. The following terms are used in this Pronouncement, with the meanings specified:

Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses.

Bearer plant is a living plant that:
(a) is used in the production or supply of agricultural produce; (b) is expected to bear produce for more than one period; and (c) has a remote likelihood of being sold as agricultural produce, except for scrap sales.
(Items 5A and 5B of CPC 29 were developed based on the definition of bearer plant.)

Cost is the amount of cash or cash equivalents paid or the fair value of any other consideration given to acquire an asset at the time of its acquisition or construction, or, if applicable, the amount attributed to the asset when initially recognized in accordance with the specific provisions of other Pronouncements, such as, for example, Technical Pronouncement CPC 10 – Share-based Payment.

Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

Value in use is the present value of the cash flows that the entity expects (i) to derive from the continued use of an asset and from its disposal at the end of its useful life or (ii) to incur in settling a liability.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Impairment loss is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.

Property, plant and equipment is a tangible item that:
(a) is held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) is expected to be used during more than one period.
These correspond to rights whose object is corporeal goods intended for the maintenance of the entity’s activities or exercised for that purpose, including those arising from operations that transfer to it the benefits, risks and control of those goods.

Recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use.

Residual value of an asset is the estimated amount that the entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Useful life is:
(a) the period of time during which the entity expects to use the asset; or (b) the number of production or similar units expected to be obtained from the use of the asset by the entity.

Recognition
7. The cost of an item of property, plant and equipment shall be recognized 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.

Spare parts, standby equipment, servicing equipment and jigs and tools are classified as property, plant and equipment when the entity expects to use them for more than one period. Similarly, if they can be used only in connection with an item of property, plant and equipment, they are also accounted for as property, plant and equipment.
This Pronouncement does not prescribe the unit of measure for recognition, i.e., what constitutes an item of property, plant and equipment. Thus, judgment is required in applying the recognition criteria to the specific circumstances of the entity. It may be appropriate to aggregate individually insignificant items, such as molds, jigs and tools, and apply the criteria to the value of the group.
The entity shall assess, under this recognition principle, all its costs relating to property, plant and equipment at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to renew it, replace its parts, or maintain it. The cost of an item of property, plant and equipment may include costs incurred relating to lease contracts for assets that are used to construct, add to, replace part of or service an item of property, plant and equipment, such as depreciation of right-of-use assets.

Initial costs
11. Items of property, plant and equipment may be acquired for safety or environmental reasons. The acquisition of such property, plant and equipment, although not directly increasing the future economic benefits of any specific existing item of property, plant and equipment, may be necessary for the entity to obtain the future economic benefits from its other assets. These items of property, plant and equipment qualify for recognition as an asset because they enable the entity to obtain future economic benefits from the related assets in excess of the benefits that it would derive had it not acquired those items. For example, a chemical industry may install new chemical handling processes in order to meet environmental requirements for the production and storage of hazardous chemicals; the improvements and enhancements to the facilities are recognized as an asset because, without them, the entity would not be in a position to manufacture and sell such chemicals. However, the resulting carrying amount of this asset and the related assets shall have its recoverable amount revised in accordance with Technical Pronouncement CPC 01 – Impairment of Assets.

Subsequent costs
12. Under the recognition principle of item 7, the entity does not recognize in the carrying amount of an item of property, plant and equipment the costs of the routine servicing of the item. Rather, these costs are recognized in profit or loss when incurred. The costs of the routine servicing are primarily the costs of labour and consumables, and may include the costs of small parts. The purpose of these expenditures is often described as being for the ‘repair and maintenance’ of an item of property, plant and equipment.

Parts of some items of property, plant and equipment may require replacement at regular intervals. For example, a furnace may require a new lining after a specific number of hours of use; or the interiors of aircraft, such as seats and interior fittings, may require replacement several times during the life of the airframe. Items of property, plant and equipment may also be acquired to effect less frequent recurring replacements, such as the replacement of the interior walls of a building, or to effect non-recurring replacements. Under the recognition principle of item 7, the entity recognizes in the carrying amount of an item of property, plant and equipment the cost of the replaced part of that item when the cost is incurred if the recognition criteria are met. The carrying amount of the parts that are replaced is derecognized in accordance with the derecognition provisions of this Pronouncement (see items 67 to 72).
A condition for continuing to operate an item of property, plant and equipment (for example, an aircraft) may be the regular performance of major inspections for faults, regardless of whether the parts of that item are replaced. When each major inspection is performed, its cost is recognized in the carrying amount of an item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any carrying amount of the cost of the previous inspection (distinct from physical parts) is derecognized. This occurs regardless of whether the cost of the previous inspection was identified in the transaction that resulted in the acquisition of the item. If necessary, the estimated cost of a future similar inspection may be used as an indicator of what the cost of the existing inspection component was when the item was acquired or constructed.

Measurement on recognition
15. An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.

Elements of cost
16. The cost of an item of property, plant and equipment comprises:
(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; (b) 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; (c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Such costs represent the obligation incurred by the entity when the item is acquired or as a consequence of using the item for a purpose other than the production of inventories during that period.

Examples of directly attributable costs are:
(a) employee benefits (as defined in Technical Pronouncement CPC 33 – Employee Benefits) arising directly from the construction or acquisition of an item of property, plant and equipment; (b) site preparation costs; (c) initial delivery and handling costs (for receipt and installation); (d) installation and assembly costs; (e) costs of testing whether the asset is functioning properly (i.e., assessing whether the technical and physical performance of the asset is capable of being used in the production or supply of goods or services, for rental to others or for administrative purposes); and (f) professional fees.
The entity applies Technical Pronouncement CPC 16 – Inventories to the costs of obligations for dismantling, removal and restoration of the site on which the item is located that are incurred during a particular period as a consequence of having used the item to produce inventories during that period. Obligations arising from costs accounted for in accordance with Technical Pronouncement CPC 16 or this Pronouncement are recognized and measured in accordance with Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets.
Examples of costs that are not costs of an item of property, plant and equipment are:
(a) costs of opening a new facility;
(b) costs incurred in introducing a new product or service (including advertising and promotional activities); (c) costs associated with relocating or reorganizing part or all of an entity’s operations (including costs of training); (d) administrative and other general overhead costs.
Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying an item are not included in its carrying amount, such as the following costs:
(a) costs incurred during the period in which the asset capable of operating in the manner intended by management is not being used or is being operated at less than full capacity; (b) initial operating losses, such as those incurred while demand for the asset’s output is being established; and (c) costs of relocating or reorganizing part or all of an entity’s operations.

20A. Items may be produced while bringing an item of property, plant and equipment to the location and condition necessary for it to be capable of operating in the manner intended by management (such as samples produced when testing whether the asset is functioning properly). The entity shall recognize the proceeds from selling such items, and the cost of those items, in profit or loss in accordance with applicable accounting standards. The entity shall measure the cost of those items by applying the measurement requirements of CPC 16.

Some activities undertaken in connection with the construction or development of an item of property, plant and equipment are not necessary to bring the item to the location and condition necessary for it to be capable of operating in the manner intended by management. These incidental activities may occur before or during the construction or development activities. For example, the construction site may be used as a car park and generate revenue until construction begins. Because these activities are not necessary for the asset to be in a position to function in the location and in the manner intended by management, the related revenues and expenses shall be recognized in profit or loss and included in the respective revenue and expense classifications.
The cost of self-constructed assets is determined using the same principles as for acquired assets. If the entity produces identical assets for sale in the normal course of its operations, the cost of the asset is generally the same as the cost of constructing the asset for sale (see Technical Pronouncement CPC 16 – Inventories). Therefore, any profits generated internally are eliminated to determine such costs. Similarly, the cost of abnormal amounts of materials, labour or other resources incurred in the construction of an asset is not included in the cost of the asset. Technical Pronouncement CPC 20 – Borrowing Costs establishes criteria for the recognition of interest as a component of the carrying amount of a self-constructed item of property, plant and equipment.

22A. Bearer plants shall be accounted for in the same way as an item of property, plant and equipment constructed by the entity itself until the asset is in the location and in the condition necessary for it to be capable of operating in the manner intended by management. Consequently, references to ‘construction’ in this Pronouncement shall be understood as encompassing the activities that are necessary to cultivate the bearer plants until they are in the location and in the condition necessary to produce in the manner intended by management.

Measurement of cost
23. The cost of an item of property, plant and equipment is equivalent to the cash price at the date of recognition. If the payment period exceeds normal credit terms, the difference between the cash price equivalent and the total payments shall be recognized as interest expense over the period (see Technical Pronouncements CPC 12 – Present Value, especially its item 9, and CPC 08 – Transaction Costs and Premiums on the Issuance of Securities), unless it is eligible for capitalization in accordance with Technical Pronouncement CPC 20 – Borrowing Costs.

An item of property, plant and equipment may be acquired in exchange for a non-monetary asset, or a combination of monetary and non-monetary assets. The assets subject to exchange may be of the same nature or of different nature. The following text refers only to the exchange of a non-monetary asset for another; however, the same concept can be applied to all the exchanges described above. The cost of such an item of property, plant and equipment is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up can be measured reliably. The acquired asset is measured in this way even if the entity is unable to derecognize the asset given up immediately. If the acquired asset is not measurable at fair value, its cost is determined by the carrying amount of the asset given up.
The entity shall determine whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if:
(a) the configuration (i.e., risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset given up; or (b) the entity-specific value of the portion of its operations affected by the transaction changes as a result of the exchange; and (c) the difference in (a) or (b) is significant in relation to the fair value of the assets exchanged. To determine whether an exchange transaction has commercial substance, the entity-specific value of the portion of its operations affected by the transaction shall be reflected in after-tax cash flows. The outcome of these analyses may be evident without the entity performing detailed calculations.
The fair value of an asset is measurable reliably: (a) if the variability of the range of reasonable fair value measurements is not significant or (b) if the probabilities of the various estimates within the range can be reasonably assessed and used in measuring fair value. If the entity is able to measure reliably both the fair value of the asset received and the asset given up, then the fair value of the latter shall be used to measure the cost of the asset received, unless the fair value of the former is more evident.
(Eliminated).

COMMISSION OF SECURITIES AND EXCHANGE COMMISSION Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000

The carrying amount of an item of property, plant and equipment may be reduced by government grants in accordance with Technical Pronouncement CPC 07 – Government Grants and Government Assistance.

Measurement after recognition

When the option for the revaluation method is permitted by law(1), the entity must choose either the cost method of item 30 or the revaluation method of item 31 as its accounting policy and must apply that policy to an entire class of property, plant and equipment.

(1) The revaluation of tangible and intangible assets is not permitted due to the provisions contained in Law No. 11,638/2007, which amended Law No. 6,404/1976.

Cost method

After recognition as an asset, an item of property, plant and equipment shall be carried at cost less any accumulated depreciation and accumulated impairment losses (Technical Pronouncement CPC 01 – Impairment of Assets).

Revaluation method

After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably may be carried, if permitted by law, at its revalued amount, being its fair value at the date of revaluation less any subsequent accumulated depreciation and accumulated impairment losses. 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.

32-33. (Eliminated).

The frequency of revaluations, if permitted by law, depends on the changes in fair values of the property, plant and equipment being revalued. When the fair value of a revalued asset differs materially from its carrying amount, a new revaluation is required. Some items of property, plant and equipment undergo significant and volatile changes in fair value, necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and equipment that do not undergo significant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years.
When an item of property, plant and equipment is revalued, the carrying amount of the asset shall be adjusted to the revalued amount. At the date of revaluation, the asset shall be treated in one of the following ways:
(a) the gross carrying amount shall be adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. For example, the gross carrying amount may be adjusted by reference to observable market data, or may be adjusted proportionately to the change in the carrying amount. The accumulated depreciation at the date of revaluation shall be adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses; or (b) the accumulated depreciation is eliminated against the gross carrying amount of the asset. The amount of the adjustment of accumulated depreciation forms part of the increase or decrease in the carrying amount recognized under items 39 and 40.

If the revaluation method is permitted by law and an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued.
A class of property, plant and equipment is a grouping of assets of a similar nature and use in an entity's operations. Examples of individual classes are:
(a) land;
(b) land and buildings;
(c) machinery;
(d) ships;
(e) aircraft;
(f) motor vehicles;
(g) furniture and fixtures;
(h) office equipment; and
(i) bearer plants.
Items within each class of property, plant and equipment are revalued simultaneously in order to avoid selective revaluation of assets and the disclosure of amounts in the financial statements that are a combination of costs and values at different dates. However, a class of assets may be revalued on a rolling basis provided that the revaluation of the class of assets is completed in a short period and that the revaluations are kept up to date.
If the carrying amount of an asset increases as a result of a revaluation, the increase shall be credited directly to equity. However, the increase shall be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss.
If the carrying amount of an asset decreases as a result of a revaluation, the decrease shall be recognized in profit or loss. However, the decrease shall be debited directly to equity to the extent of any credit balance existing in the revaluation surplus in respect of that asset.
The balance relating to the accumulated revaluation of the item of property, plant and equipment included in equity may only be transferred to retained profits when the reserve is realized. The total amount may be realized upon the disposal or derecognition of the asset. However, part of the reserve may be transferred while the asset is being used by the entity. In this case, the amount of the reserve to be transferred is the difference between the depreciation based on the carrying amount of the asset and the depreciation that would have been recognized based on the historical cost of the asset. Transfers to retained profits do not pass through profit or loss.
The effects of income tax, if any, resulting from the revaluation of property, plant and equipment are recognized and disclosed in accordance with Technical Pronouncement CPC 32 – Income Taxes.

Depreciation

Each component of an item of property, plant and equipment with a cost significant in relation to the total cost of the item shall be depreciated separately.
The entity shall allocate the initially recognized amount of an item of property, plant and equipment to its significant components and depreciate them separately. For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft. Similarly, if the lessor acquires property, plant and equipment that is subject to an operating lease, it may be appropriate to depreciate separately the amounts relating to the cost of that item that are attributable to favorable or unfavorable lease conditions relative to market conditions.
A significant component of an item of property, plant and equipment may have the same useful life and depreciation method as another significant component of the same item. These components may be grouped in the calculation of depreciation expense.
As the entity depreciates separately some components of an item of property, plant and equipment, it also depreciates separately the remainder of the item. This remainder consists of components of an item that are not individually significant. If the entity has different expectations for these parts, approximation techniques may be necessary to depreciate the remainder in a way that faithfully represents the pattern of consumption and/or the useful life of these components.
The entity may choose to depreciate separately the components of an item that do not have a cost significant in relation to the total cost of the item.
The depreciation expense for each period shall be recognized in profit or loss unless it is included in the carrying amount of another asset.
Depreciation for the period shall normally be recognized in profit or loss. However, sometimes the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the depreciation forms part of the cost of the other asset and shall be included in its carrying amount. For example, depreciation of machinery and equipment for production is included in the production costs of inventory (see Technical Pronouncement CPC 16 – Inventories). Similarly, depreciation of property, plant and equipment used for development activities may be included in the cost of an intangible asset recognized in accordance with Technical Pronouncement CPC 04 – Intangible Assets.

Depreciable amount and depreciation period

The depreciable amount of an asset shall be allocated on a systematic basis over its estimated useful life.
The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change shall be accounted for as a change in accounting estimate, in accordance with Technical Pronouncement CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors.

Depreciation is recognized even if the fair value of the asset exceeds its carrying amount, provided that the residual value of the asset does not exceed its carrying amount. Repair and maintenance of an asset do not avoid the need to depreciate it.
The depreciable amount of an asset is determined after deducting its residual value. In practice, the residual value of an asset is often not significant and therefore immaterial for the calculation of the depreciable amount.
The residual value of an asset may increase. Depreciation expense shall be zero while the subsequent residual value is equal to or greater than its carrying amount.
Depreciation of an asset begins when it is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset shall cease at the date that the asset is classified as held for sale (or included in a disposal group classified as held for sale in accordance with Technical Pronouncement CPC 31 – Non-current Assets Held for Sale and Discontinued Operations) or, alternatively, at the date that the asset is derecognized, whichever occurs first. Therefore, depreciation does not cease when the asset becomes idle or is withdrawn from normal use, unless the asset is fully depreciated. However, according to usage-based depreciation methods, depreciation expense may be zero while there is no production.
The future economic benefits embodied in an asset are consumed by the entity principally through its use. However, other factors, such as technical or commercial obsolescence and normal wear and tear while the asset remains idle, often give rise to a decrease in the economic benefits that could have been obtained from the asset. Consequently, all of the following factors are considered in determining the useful life of an asset:
(a) expected usage of the asset, which is assessed on the basis of the expected physical capacity or expected physical output of the asset; (b) expected physical wear and tear, which depends on operational factors such as the number of shifts during which the asset is to be used, the repair and maintenance programme, and the care and maintenance of the asset while it is idle; (c) technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset. Expected future reductions in the selling price of an item that was produced using an asset may indicate an expectation of technical or commercial obsolescence of the asset, which, in turn, may reflect a reduction in the future economic benefits embodied in the asset; (d) legal or similar limits on the use of the asset, such as the expiry dates of related lease contracts.
The useful life of an asset is defined in terms of the expected utility of the asset to the entity. The entity's asset management policy may consider the disposal of assets after a specified period or after the consumption of a specific proportion of the future economic benefits embodied in the asset. Therefore, the useful life of an asset may be shorter than its economic life. The estimate of the useful life of an asset is a matter of judgment based on the entity's experience with similar assets.

Land and buildings are separable assets and are accounted for separately, even when acquired together. With some exceptions, such as quarries and sites used as landfills, land has an unlimited useful life and, therefore, is not depreciated. Buildings have a limited useful life and, therefore, are depreciable assets. An increase in the value of land on which a building is constructed does not affect the carrying amount of the building.
If the cost of land includes costs of dismantling, removal, and restoration of the site, that portion of the carrying amount of the land is depreciated over the period of benefits obtained in incurring those costs. In some cases, the land itself may have a limited useful life, being depreciated to reflect the benefits to be derived from it.

Depreciation method

The depreciation method used reflects the pattern of consumption by the entity of the future economic benefits.
The depreciation method applied to an asset shall be reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption, the depreciation method shall be changed to reflect the change. Such a change shall be accounted for as a change in accounting estimate, in accordance with Technical Pronouncement CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors.
Various depreciation methods may be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. Such methods include the straight-line method, the declining balance method, and the units of production method. Depreciation using the linear method results in constant expense during the useful life of the asset, provided that its residual value does not change. The declining balance method results in decreasing expense during the useful life. The units of production method results in expense based on expected usage or production. The entity selects the method that best reflects the pattern of consumption of the expected future economic benefits embodied in the asset. This method is applied consistently between periods, unless there is a change in this pattern.

62A. The depreciation method that is based on the revenue generated by the activity that includes the use of an asset is not appropriate. Revenue generated by the activity that includes the use of an asset generally reflects other factors in addition to the consumption of the economic benefits of the asset. For example, revenue is affected by other inputs and processes, sales activities, and changes in sales volumes and prices. The price component of revenue may be affected by inflation, which has no influence on the way in which the asset is consumed.

Impairment of assets

To determine whether an item of property, plant and equipment has any part of its value unrecoverable, the entity applies Technical Pronouncement CPC 01 – Impairment of Assets. This Pronouncement determines how the entity shall review the carrying amount of its assets, how to determine its recoverable amount, and when to recognize or reverse impairment losses.

(Eliminated).

Compensation for impairment losses

Compensation from third parties for items of property, plant and equipment that have been impaired, lost, or abandoned shall be recognized in profit or loss when the compensation becomes receivable.
Impairments or losses of items of property, plant and equipment, payments or claims relating to third-party compensation, and any subsequent acquisition or construction of replacement assets are separate economic events, accounted for separately as follows:
(a) impairments of items of property, plant and equipment are recognized in accordance with Technical Pronouncement CPC 01; (b) the derecognition of obsolete or disposed items of property, plant and equipment is determined in accordance with this Pronouncement; (c) compensation from third parties for items of property, plant and equipment that have been impaired, lost, or abandoned is recognized in profit or loss when the compensation becomes receivable; and (d) the cost of items of property, plant and equipment restored, acquired, or constructed for replacement is determined in accordance with this Pronouncement.

Derecognition

The carrying amount of an item of property, plant and equipment shall be derecognized:
(a) on disposal; or
(b) when no future economic benefits are expected from its use or disposal.
Gains or losses arising from the derecognition of an item of property, plant and equipment shall be recognized in profit or loss when the item is derecognized (unless CPC 06 – Leases requires otherwise in a sale and leaseback transaction). Gains shall not be classified as sales revenue.

68A. However, an entity that, in the course of its operating activities, normally sells items of property, plant and equipment that were held for rental to third parties shall transfer such assets to inventory at their carrying amount when the assets cease to be rented and are held for sale. Revenue from the sale of such assets shall be recognized as revenue in accordance with CPC 47 – Revenue from Contracts with Customers. CPC 31 – Non-current Assets Held for Sale and Discontinued Operations does not apply when assets, which are held for sale during operating activities, are transferred to inventory.

There are several ways to dispose of an item of property, plant and equipment (e.g., sale, finance lease, or donation). The date of disposal of the item of property, plant and equipment is the date when the recipient obtains control of that item in accordance with the requirements of CPC 47 that determine when the performance obligation is satisfied. CPC 06 applies to disposal in a sale and leaseback transaction.

If, in accordance with the recognition principle set out in item 7, the entity recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of the item, it shall derecognize the carrying amount of the replaced part, regardless of whether the replaced part is being depreciated separately or not. If determining that carrying amount is impracticable for the entity, it may use the cost of replacement as an indicator of the cost of the replaced part at the time it was acquired or constructed.
Gains or losses arising from the derecognition of an item of property, plant and equipment shall be determined by the difference between the net disposal proceeds, if any, and the carrying amount of the item.
The value of the consideration for the disposal of an item of property, plant and equipment shall be established in accordance with the requirements for determining the transaction price in items 47 to 72 of CPC 47. Subsequent changes to the estimated consideration included in the gain or loss shall be accounted for in accordance with the requirements for changes in transaction price in CPC 47.

Disclosure

The financial statements shall disclose, for each class of property, plant and equipment:
(a) the measurement bases used to determine the gross carrying amount; (b) the depreciation methods used; (c) the useful lives or the depreciation rates used; (d) the gross carrying amount and the accumulated depreciation (plus accumulated impairment losses) at the beginning and end of the period; and (e) a reconciliation of the carrying amount at the beginning and end of the period showing:
(i) additions;
(ii) assets classified as held for sale or included in a disposal group classified as held for sale in accordance with Technical Pronouncement CPC 31 – Non-current Assets Held for Sale and Discontinued Operations and other disposals; (iii) acquisitions through business combinations; (iv) increases or decreases arising from revaluations under items 31, 39 and 40 and impairment losses of assets recognized or reversed directly in equity in accordance with Technical Pronouncement CPC 01 – Impairment of Assets; (v) provisions for asset losses, recognized in profit or loss, in accordance with Technical Pronouncement CPC 01 – Impairment of Assets; (vi) reversal of impairment losses of assets, appropriated in profit or loss, in accordance with Technical Pronouncement CPC 01 – Impairment of Assets; (vii) depreciation; (viii) net exchange differences arising from the translation of the financial statements from the functional currency to the presentation currency, including the translation of a foreign operation into the entity's presentation currency; and (ix) other changes.
The financial statements shall also disclose:
(a) the existence and carrying amounts of assets whose title is restricted, such as assets

COMMISSION OF SECURITIES AND EXCHANGE COMMISSION Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – CEP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brazil - Tel.: (11) 2146-2000 formally or essentially offered as collateral for obligations and those acquired through a leasing operation in accordance with CPC 06; (b) the value of expenses recognized in the carrying amount of an item of property, plant and equipment during its construction; and (c) the value of contractual commitments arising from the acquisition of property, plant and equipment assets. (d) (Eliminated). 74A. If not presented separately in the statement of comprehensive income, the financial statements must also disclose:
(a) the value of third-party compensation for items of property, plant and equipment that were damaged, lost or disposed of that are included in profit or loss; and (b) the values of revenues and costs included in profit or loss, in accordance with item 20A, that relate to items produced that are not an output of the ordinary activities of the entity, and which item of the statement of comprehensive income includes such revenues and costs.
75. The selection of the depreciation method and the estimate of the useful life of assets are matters of
judgment. Therefore, the disclosure of the methods adopted and the estimates of useful lives or of the depreciation rates provides users of the financial statements with information that allows them to review the policies selected by management and facilitates comparisons with other entities. For similar reasons, it is necessary to disclose:
(a) depreciation, whether recognized in profit or loss or as part of the cost of other assets, during the period; and (b) accumulated depreciation at the end of the period.
76. In accordance with Technical Pronouncement CPC 23 – Accounting Policies, Change in Estimate
and Correction of Errors, the entity must disclose the nature and effect of a change in accounting estimate that has an impact on the current period or in subsequent periods.
With respect to property, plant and equipment assets, such disclosure may result from changes in estimates relating to:
(a) residual values;
(b) estimated costs of dismantling, removal or restoration of items of property, plant and equipment; (c) useful lives; and (d) depreciation methods.
77. If items of property, plant and equipment are accounted for at revalued amounts, when this is
legally permitted, the entity must disclose, in addition to the disclosures required by Technical Pronouncement CPC 46, the following:
(a) the effective date of the revaluation;
(b) whether an independent appraiser was used or not; (c) (eliminated); (d) (eliminated); (e) for each class of revalued property, plant and equipment asset, the carrying amount that would have been recognized if the assets had been accounted for in accordance with the cost method; and (f) the revaluation reserve, indicating the change in the period and any restrictions on the distribution of the balance to shareholders.
78. In accordance with Technical Pronouncement CPC 01 – Impairment of Assets, the

COMMISSION OF SECURITIES AND EXCHANGE COMMISSION Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – CEP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brazil - Tel.: (11) 2146-2000 entity must disclose information about property, plant and equipment assets that have lost their value, in addition to the information required in item 73(e)(iv)-(vi).
79. Users of the financial statements may also consider the following information
relevant to their needs:
(a) the carrying amount of property, plant and equipment assets that are temporarily idle; (b) the gross carrying amount of any property, plant and equipment asset fully depreciated that is still in operation; (c) the carrying amount of property, plant and equipment assets withdrawn from active use and not classified as held for sale in accordance with Technical Pronouncement CPC 31 – Non-Current Asset Held for Sale and Discontinued Operations; and (d) the fair value of the property, plant and equipment asset when it is materially different from the carrying amount determined by the cost method. Therefore, entities are encouraged to disclose these values. Transitional Provision
80. The requirements of items 24 to 26, relating to the initial measurement of an item of property, plant and equipment
acquired through an exchange of assets, must be applied prospectively only to transactions after the adoption of this Technical Pronouncement by the entity.
80A. (Eliminated).
80B. In the period in which the relevant changes to bearer plants are applied for the first time, the entity does not need to disclose the quantitative information required by item 28(f) of CPC 23 for the current period. However, the entity must present the information quantitative information required by item 28(f) of CPC 23 for each prior period presented. 80C. The entity may elect to measure an item of bearer plants at its fair value at the beginning of the earliest period presented in the financial statements relating to the reporting period in which the entity applies the relevant changes to bearer plants for the first time and use this fair value as deemed cost on that date. Any difference between the previous carrying amount and the fair value must be recognized in retained earnings at the beginning of the period earliest period presented. 80D. CPC Revision 19, approved by the CPC on October 1, 2021, amended items 17 and 74 and added items 20A and 74A. The entity must apply retrospectively, but only to items of property, plant and equipment assets that are placed in the location and condition necessary for them to be able to operate in the manner intended by management in, or after, the beginning of the period earliest period presented in the financial statements in which the entity applies the revision for the first time. The entity must recognize the cumulative effect of the initial application of the changes as an adjustment to the opening balance of retained earnings (or another component of equity, as appropriate) at the beginning of the earliest period presented. 81N. CPC Revision 19, approved by the CPC on October 1, 2021, amended items 17 and 74 and added items 20A, 74A and 80D. The effective date of this Revision must be established by the regulatory bodies that approve it, and, in order to fully comply with international standards of accounting, the entity must apply these changes for annual periods beginning on or after January 1, 2022.

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