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CA Final · Financial Reporting · Ind AS 16 Property, Plant and Equipment

Sahyadri Textiles Ltd buys a standby generator for its spinning unit. The generator is expected to be used for several years, and it is held for use in the production of goods. Which feature, taken from the definition of property, plant and equipment in Ind AS 16, is satisfied by the expected multi-year use?

The generator satisfies the condition that it is expected to be used during more than one period. Ind AS 16 defines PPE as tangible items held for production, supply, rental or administration purposes and expected to be used over more than one period; multi-year use meets this second condition.

  1. AThe item is tangible and held for rental to others only
  2. BThe item is expected to be used during more than one periodCorrect
  3. CThe item's recoverable amount exceeds its carrying amount
  4. DThe item has a residual value higher than zero

Explanation

Ind AS 16 defines PPE as tangible items (a) held for use in production or supply of goods or services, for rental to others or for administrative purposes, and (b) expected to be used during more than one period. Multi-year use satisfies condition (b). Rental is only one alternative purpose under (a), so the first option is wrong. Recoverable amount and residual value are not part of the definition.

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