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

Which of the following items would NOT meet the AS 10 definition of property, plant and equipment in the books of Kaveri Motors Ltd, a car dealer?

Cars bought for sale in the ordinary course of business are not PPE, because they are held for resale rather than for use in production, supply, rental or administration. They are inventory. The van, computers and a building held for rental fit the definition.

  1. AA delivery van used for transporting spare parts to customers, expected to be used for 6 years
  2. BOffice computers used for administrative work, expected to be used for 4 years
  3. CA showroom building let out on rent to another firm, as rental to others is the intended use
  4. DCars bought for sale to customers in the ordinary course of businessCorrect

Explanation

PPE must be held for production or supply of goods or services, rental to others, or administrative purposes and be used for more than twelve months. Cars bought for sale are held for resale, so they are inventory. The van and computers satisfy both criteria; the rented showroom is held for rental to others, which is within the definition (subject to AS 13 if it is investment property).

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