Many businesses especially SMEs are constantly faced with the dilemma of determining the real cost of an item of Property, Plant, or Equipment (PPE). Is it simply the price paid to acquire the particular item or is there more to it? Before we attempt to answer these questions, we must first appreciate what is PPEs.
According to International Accounting Standard (IAS) 16, PPEs are tangible items that:
- Are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
- Are expected to be used during more than one period i.e. more than an accounting year.
If the item you have just purchased does not meet the definition as outlined above, it should not be classified as a PPE but rather as an expense. If it does, then let’s turn our attention to what comprises the real cost of a PPE.
I hope this information was helpful to you with understanding a little bit more about PPEs.
If you are still unsure and require assistance, we at WJ Accounting are ready and able to assist.
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We will aid you with the best advice for continued success. Contact us today!