Accounting

Recognition Criteria For Property Plant And Equipment

We cannot recognize everything as assets, there should be criteria as such. Para 7 of IAS 16 contains the following recognition criteria for property plant and equipment:

Recognition criteria for property plant and equipment:The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if:

(a)   it is probable that future economic benefits associated with the item will flow to the entity; and

(b)   the cost of the item can be measured reliably.

What assets constitute property, plant and equipment?

Para 6 of IAS 16 defines property, plant and equipment as follows:

Property, plant and equipment are tangible items that:

(a)   are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

(b)   are expected to be used during more than one period.

As per Para 7 of IAS 16 we have to follow recognition criteria for property plant and equipment

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