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CMA Intermediate · Financial Accounting · Property, Plant and Equipment (AS 10)

Under AS 10, which of the following correctly describes the two features that a tangible item must satisfy to be classified as property, plant and equipment?

PPE comprises tangible items held for production or supply of goods or services, for rental to others, or for administrative purposes, and expected to be used during more than twelve months. Both conditions must be met, so resale items, intangible items or short-lived items fail the definition.

  1. AHeld for use in production, supply of goods or services, rental to others or administrative purposes, and expected to be used for more than twelve monthsCorrect
  2. BHeld for resale in the ordinary course of business, and expected to be used for more than twelve months
  3. CHeld for use in production or administration, and expected to be used for at least three years
  4. DHeld for use in production only, and having a cost above a minimum limit prescribed by the standard

Explanation

AS 10 defines PPE as tangible items held for use in production or supply of goods or services, for rental to others, or for administrative purposes, and expected to be used during more than twelve months. Items held for resale are inventory, not PPE. The standard does not prescribe a three-year period or a monetary threshold.

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