Property, Plant and Equipment (PPE)
International Accounting Standard 16 (IAS 16) defines property, plant and equipment as the “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”.
From the above definition of property, plant and equipment, three important points are noticeable.
Firstly, property, plant and equipment is a class of assets which includes tangible assets only. Intangible assets such as patents, copyrights and goodwill are not included in this class of assets.
Secondly, the assets termed as property, plant and equipment are held for the purpose of use. The assets can either be used in the process of production or supply of goods or services or they can be used for administrative purposes. Assets which are held for the purpose of earning rentals are also part of property, plant, and equipment.
Thirdly, only non-current assets can be classified as property plant and equipment. These assets are expected to be used for more than one year. Assets which have life less than a year cannot be classified in this class.
The assets in property, plant and equipment are initially recognized at cost. The cost of the asset is measured at the cash prize equivalent at the date of acquisition. The cost may include purchase price, import duties, and nonrefundable purchase taxes. The costs which can be directly attributed to bringing the asset to the location and condition necessary for it to be used in its intended manner are also part of the cost.
Subsequent to the initial recognition of an item of property, plant and equipment, the item should be measured either at cost model or revaluation model. If the cost model is adopted, the asset is carried at cost less accumulated depreciation and any impairment losses. If the revaluation model is used, the asset is carried at the revalued amount. The revalued amount is the fair value of the asset less accumulated depreciation and any impairment losses.
Start free ReadyRatios
reporting tool now!
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software
Most WantedIFRS Terms
- Statement of Comprehensive Income
- Cost of Sales
- Finance Costs
- Shareholders Equity
- Earnings per Share (EPS)
- Capital Expenditure (CAPEX)
- Deferred Tax Assets (Deferred Tax Liabilities)
- Intercompany Eliminations
- Share Premium
- Distribution Cost
Have 10 minutes to relax?Play our unique
Play The Game