Skip to content

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

Sundaram Textiles Ltd holds a set of standby generators that it uses only during power cuts at its weaving unit. The generators are expected to be used over several years. Under the definition of property, plant and equipment in Ind AS 16, how should the generators be treated?

The generators are property, plant and equipment. They are tangible, held for use in production, and expected to be used for more than one period. Occasional use does not change this, so they are not expensed, not inventory and not intangible assets.

  1. AAs property, plant and equipment, since they are tangible items held for use in production and expected to be used during more than one periodCorrect
  2. BAs inventory, because they are used only occasionally
  3. CAs an intangible asset, because they produce no regular output
  4. DAs an expense when purchased, because they are not used continuously

Explanation

Ind AS 16 defines PPE as tangible items held for use in production or supply of goods or services, for rental or for administrative purposes, and expected to be used during more than one period. The generators meet both conditions even though use is occasional. Treating them as an expense or inventory ignores the multi-period test.

Did you get it right without looking?

One question tells you little. A timed set on Ind AS 16 Property, Plant and Equipment shows your real accuracy, how long you take and where you lose marks.

Practise Ind AS 16 Property, Plant and EquipmentFree diagnostic mock

More Ind AS 16 Property, Plant and Equipment questions