Definition of property, plant and equipment

Learning objectives

• Identify the criteria in the definition of property, plant and equipment.L1
• Distinguish an item of property, plant and equipment from inventory, an intangible asset or an investment property on the basis of its intended use.L2

Normative references

• IAS 16 §6Definitions. Property, plant and equipment: tangible items held for use in the production or supply of goods or services, for rental to others or for administrative purposes, and expected to be used during more than one period. Bearer plant: a living plant used to produce agricultural produce, expected to bear produce for more than one period and very unlikely to be sold as agricultural produce, except for incidental scrap sales. Carrying amount: the amount at which the asset is recognised after deducting accumulated depreciation and accumulated impairment losses. Cost: the cash or cash equivalents paid, or the fair value of the other consideration given, to acquire or construct the asset, or the amount attributed to it under another IFRS (for example IFRS 2). Depreciable amount: the cost of the asset (or other amount substituted for cost) less its residual value. Depreciation: the systematic allocation of the depreciable amount over the useful life. Entity-specific value: the present value of the cash flows the entity expects from the continuing use of the asset and its disposal at the end of its useful life, or expects to incur to settle a liability. Fair value: by reference to IFRS 13. Impairment loss: the excess of carrying amount over recoverable amount. Recoverable amount: the higher of fair value less costs of disposal and value in use. Residual value: the amount, net of estimated costs of disposal, that the entity would obtain today from disposing of the asset if it were already of the age and in the condition expected at the end of its useful life. Useful life: the period over which the entity expects to use the asset, or the number of production units it expects to obtain from it.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• Which statement correctly sets out the two conditions in the definition of property, plant and equipment?L1
• A car dealer has recognised the items below as property, plant and equipment. Which one is a classification error?L2