9.1 Definition

The computers, furniture, buildings, land, factory equipment, and so forth that a business owns are called its hard assets, also sometimes referred to as fixed assets or capital assets. But the term that is consistently used in the IFRS publications is property, plant, and equipment (PPE).

According to IAS 16.6, under IFRS property, plant, and equipment are the tangible items that are:

• held for use in the production or supply of goods or services, for rental to others, or for administrative purposes
• expected to be used during more than one period (IAS, 2003a)

A key element of the definition is that the item be tangible. This means that it must have a physical substance; therefore, it does not include items of an intangible nature, such as a copyright. The intended use of the asset is also important, as it is expected that it be used for some productive purpose and not simply resold to a customer. This distinction of intent is important. An automobile held by a car dealership would be considered inventory, as the dealership intended to resell it; whereas, an automobile owned by a rental company would be considered PPE, as the intended use is earning revenue from rentals.

The definition also suggests that the asset should be useful to the business for more than one accounting period. Although this means that a tangible, productive asset with a useful life of two years would be considered PPE, many PPE items have lives much longer than this. A property that includes land and a manufacturing facility could be useful to a business for thirty or forty years, or even longer. The long-term, productive assets of a business are sometimes referred to as bricks and mortar, suggesting something of the relatively permanent nature of these assets.