Advanced Accounting · AS 10 Property, Plant and Equipment

AS 10 Scope, Definitions and Recognition of PPE

Updated 5 October 2026

AS 10 prescribes how to account for property, plant and equipment (PPE): which items qualify, how they are recognised and measured. An item is recognised as an asset only if future economic benefits are probable and its cost can be measured reliably. Check scope, then the definition, then both criteria.

Understand AS 10 Scope, Definitions and Recognition of PPE

AS 10 deals with the accounting for tangible items that a business holds to use in production or supply of goods or services, for rental to others, or for administrative purposes, and that it expects to use for more than one accounting period. Land, buildings, plant, furniture, vehicles and office equipment are typical examples.

The standard first fixes its scope. AS 10 does not deal with these items:

Forests, plantations and similar regenerative natural resources.
Wasting assets, including mineral rights and expenditure on the exploration for and extraction of minerals, oil, natural gas and similar non-regenerative resources.
Expenditure on real estate development.
Investment property, such as land or buildings held purely as an investment and not for use in the business. This is governed by AS 13 (Accounting for Investments).

There is one catch. Although these assets are themselves outside AS 10, AS 10 does apply to PPE that is used to develop or maintain them. A machine used to extract minerals is still PPE.

Keep a second group apart from the scope list above. Some items are not PPE because they fail the definition, and another standard governs them. Items held for sale in the ordinary course are inventory under AS 2. Intangible assets are not tangible, so they come under AS 26. These are not scope exclusions. Learn the idea: AS 10 applies to PPE, and if another standard governs the asset, AS 10 steps aside.

Next come the definitions. AS 10 (as revised) defines PPE, cost, fair value, depreciable amount, residual value, useful life, carrying amount and impairment loss. The same standard also covers the depreciation of PPE, so you use the AS 10 definitions below for depreciation questions too.

Cost is the amount paid, or the fair value of other consideration given, to acquire an asset at the time of acquisition or construction. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. Depreciable amount is the cost of the asset (or other amount substituted for cost) less its residual value. Residual value is the estimated amount an enterprise would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, as if the asset were already of the age and condition expected at the end of its useful life. Useful life is the period over which the asset is expected to be used by the enterprise, or the number of production or similar units expected from it.

Finally, recognition. An item of PPE is recognised as an asset when two conditions are both met: it is probable that future economic benefits associated with the item will flow to the enterprise, and its cost can be measured reliably. If either fails, the spend is an expense in the Statement of Profit and Loss.

Spare parts need judgement. The labels "Test 1" and "Test 2" below are a study aid, not ICAI terms, and AS 10 does not set them out as two separate tests. Keep the two cases apart:

Test 1: Major spare parts, stand-by equipment and servicing equipment may be PPE when they meet the definition of PPE.
Test 2: Spares that can be used only in connection with a particular item of PPE, and whose use is expected to be irregular, are normally accounted for as PPE (capitalised) and depreciated over the life of that item.

Ordinary spares used in day-to-day servicing meet neither case and are normally charged to revenue.

Key rules to remember

Depreciable amount: Depreciable amount = Cost (or substituted amount) − Residual value; Residual value is net of expected disposal costs; deduct it once from cost.
Recognition test: Recognise as PPE only if: (1) future economic benefits are probable AND (2) cost can be measured reliably; Both conditions must be met. Failing either means charge to profit and loss.
Definition of PPE (use test): PPE = tangible item held for production/supply of goods or services, rental to others or administrative purposes + expected use for more than one period; An item held for sale in the ordinary course is inventory, not PPE.
Spare parts rule: Test 1: major spares / stand-by / servicing equipment → PPE if they meet the PPE definition. Test 2: spares usable only with a particular PPE item and expected to be used irregularly → normally PPE, capitalised and depreciated over that item's life. Neither case met (routine servicing spares) → revenue expense; Keep the two cases separate. The Test 1 / Test 2 labels are a study aid, not ICAI terms. State the case you applied in the answer, not just the conclusion.

How to solve AS 10 Scope, Definitions and Recognition of PPE questions

Use this sequence for any scope, definition or recognition question. It also gives you a clear structure for written answers.

1Read the item and note what it is and why the business holds it (use, rent, admin, for sale, or purely as an investment).
2Check scope: is it forests and plantations, a wasting asset such as mineral rights, real estate development expenditure, or investment property (land or buildings held purely as an investment, governed by AS 13)? If yes, AS 10 does not apply. Then check whether another standard governs the item: inventory (AS 2) or intangible (AS 26).
3Check the definition: is it tangible and expected to be used for more than one period?
4Apply recognition criterion 1: are future economic benefits probable?
5Apply recognition criterion 2: can cost be measured reliably?
6For spares, apply the tests one at a time. Test 1: is it a major spare, stand-by or servicing equipment that meets the PPE definition? Test 2: is it usable only with a particular PPE item, with irregular use expected? If neither, it is an ordinary servicing item.
7If recognised, compute depreciable amount as cost less residual value when asked.
8Write the conclusion: capitalise as PPE or charge to the Statement of Profit and Loss, with the reason.

Quickest way: Three-question filter

When to use it: For MCQs and short written parts where you need a decision in under a minute.

Ask: held for sale? Then inventory (AS 2), not PPE. Held purely as an investment? Then it is investment property, governed by AS 13, and AS 10 does not apply.
Ask: used for more than one period and tangible? If no, it is expense or another asset class.
Ask: benefits probable and cost reliable? Both yes means PPE.
For spares, run two separate cases (the labels are a study aid). Test 1: major spares, stand-by or servicing equipment are capitalised only if they meet the PPE definition. Test 2: spares usable only with a particular PPE item and expected to be used irregularly are normally capitalised. Routine servicing spares meet neither and are expense.
In MCQs, eliminate options that treat depreciable amount as cost plus residual value or that accept only one recognition criterion.
In written answers, use the format: provision, facts, conclusion. Each part earns marks.

Common mistakes in AS 10 Scope, Definitions and Recognition of PPE

Capitalising all spare parts as PPE.
Students link spares with the machine and assume they belong to it.
Fix: Capitalise a spare only if it passes a test: it is a major spare, stand-by or servicing equipment that meets the PPE definition, or it is usable only with a particular PPE item and expected to be used irregularly. Charge routine spares to revenue.
Mixing the two spare parts tests into one.
Both tests deal with spares and the wording sounds similar.
Fix: Name the test you are applying. Test 1 is about meeting the PPE definition. Test 2 is about use only with a particular PPE item and irregular use.
Treating either recognition criterion as enough.
The two conditions are remembered loosely.
Fix: Write both: probable future economic benefits and reliable measurement of cost. Both must be met.
Adding residual value to cost to get depreciable amount.
Confusion between scrap value as an inflow and as a deduction.
Fix: Depreciable amount = Cost − Residual value.
Treating items held for sale, such as a dealer's vehicles, as PPE.
Students look at the nature of the item, not the purpose of holding it.
Fix: Ask why it is held. Items held for sale in the ordinary course are inventory under AS 2.
Confusing cost with fair value.
Both are amounts linked to acquisition.
Fix: Cost is what was paid or the fair value of consideration given. Fair value is an arm's length exchange amount, used where consideration is non-cash.

Worked examples

Example 1

A manufacturing company buys a machine for ₹10,00,000. It expects to use the machine for 8 years and to sell it for ₹1,20,000 at the end, with disposal costs of ₹20,000. Compute the depreciable amount and state whether the machine can be recognised as PPE if future benefits are probable and cost is reliably measurable.

Show the solution

Residual value is the estimated disposal amount net of estimated disposal costs, on the basis of the asset's expected age and condition at the end of its useful life: ₹1,20,000 − ₹20,000 = ₹1,00,000.
Depreciable amount = Cost − Residual value = ₹10,00,000 − ₹1,00,000 = ₹9,00,000.
Recognition: the machine is tangible, held for production, and expected to be used for more than one period (8 years).
Both criteria are met: benefits are probable and cost is reliably measurable.

Answer: Depreciable amount is ₹9,00,000. The machine is recognised as PPE.

Example 2

A textile company incurred two items of expenditure during the year: (a) ₹6,00,000 on a major stand-by generator, held to run the factory during power failures and expected to be used for several years; (b) ₹40,000 on routine spare parts consumed in the monthly servicing of machines. Advise on the treatment under AS 10.

Show the solution

Provision: AS 10 treats major spare parts, stand-by equipment and servicing equipment as PPE when they meet the definition of PPE (Test 1, a study-aid label). Separately, spares usable only with a particular PPE item and expected to be used irregularly are normally accounted for as PPE (Test 2). Here we apply Test 1 to item (a).
Item (a): the generator is stand-by equipment. It is tangible, held for use in production and expected to be used over several years. It meets the definition of PPE.
Assuming future benefits are probable and cost is reliable, ₹6,00,000 is capitalised as PPE.
Item (b): routine servicing spares are consumed in the period. They do not meet the PPE definition and are not spares usable only with a particular PPE item with irregular use.
Item (b) ₹40,000 is charged to the Statement of Profit and Loss.

Answer: Capitalise ₹6,00,000 as PPE. Charge ₹40,000 to the Statement of Profit and Loss as a revenue expense.

Exam tips

For spare parts questions, state which test you applied (Test 1: meets the PPE definition as a major spare, stand-by or servicing equipment; or Test 2: usable only with a particular PPE item with irregular use) before giving your conclusion.
Write both recognition criteria by name. Examiners award a mark for each.
Check why the asset is held. Exam questions often hide inventory or an investment inside an asset-sounding item.
In MCQs on definitions, watch for options that swap residual value, cost and fair value.
If a question lists an item, ask which other standard governs it. Name that standard in your answer.

Practice questions from AS 10 Property, Plant and Equipment

AS 10 Scope, Definitions and Recognition of PPE: frequently asked questions

What are the recognition criteria for PPE under AS 10?

There are two. It must be probable that future economic benefits associated with the item will flow to the enterprise. The cost of the item must also be measured reliably. Both must be satisfied.

Are spare parts PPE or revenue expense under AS 10?

It depends on the nature of the spare. Major spare parts, stand-by equipment and servicing equipment are PPE when they meet the PPE definition. Separately, spares usable only with a particular PPE item and expected to be used irregularly are normally accounted for as PPE, capitalised and depreciated over that item's life. Spares that meet neither case are charged to revenue.

What is depreciable amount?

It is the cost of an asset, or another amount substituted for cost, less its residual value. Depreciation is allocated over the useful life on this base.

Does AS 10 apply to all assets?

No. AS 10 does not deal with forests, plantations and similar regenerative natural resources, wasting assets such as mineral rights and exploration or extraction expenditure, expenditure on real estate development, or investment property. However, AS 10 does apply to PPE used to develop or maintain these excluded assets. Land or buildings held purely as an investment are governed by AS 13. Items held for sale are inventory under AS 2, and intangibles come under AS 26. Always check scope first.