Recognition criteria

Learning objectives

• Identify the two recognition criteria for an item of property, plant and equipment.L1
• Justify whether or not an expenditure is recognised as an asset in the light of the criteria.L2, L3
• Prepare the "recognition criteria" section of an acquisition working paper.L3
• Justify the probability of the future economic benefits expected from an expenditure.L2, L3
• Determine whether the cost of an item can be measured reliably.L2

Normative references

• IAS 16 §7Recognition criteria: probable future economic benefits and cost that can be measured reliably.
• IAS 16 §10All costs, initial and subsequent (adding to, replacing part of, or servicing an item), are evaluated under the recognition principle at the time they are incurred; these costs may include costs relating to leases (e.g. depreciation of right-of-use assets used to construct or service the item).

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

2 questions

• The cost of an item of property, plant and equipment is recognised as an asset if, and only if:L1
• An entity orders a custom mould from a manufacturer to produce a new range of packaging. The mould is invoiced at 18,000 and the entity expects to use it for three years, the range already having firm orders. In three to five sentences, justify whether the expenditure should be recognised as property, plant and equipment.L2