Can an entity have different accounting policies for different classes of property, plant and equipment?

Yes, an entity can have different accounting policies for different classes of property, plant and equipment. While the broad principles in the accounting policies for the classes will be similar, the subsequent measurement of the classes could be different. Entities have a choice of subsequently measuring classes of assets at the revaluation or the cost model. To illustrate: An entity may decide to measure land using the revaluation model, and buildings using the cost model.

It is also possible for similar types of assets to be categorised as separate classes, and as a result, measured differently. To illustrate: An entity owns several properties within a municipal boundary. Some land is located in the rural outskirts of the City, and is classified as “agricultural” land, while other land is in key commercial and retail areas of the City and is classified as “commercial” land. Due to the market for commercial land, and that agricultural land are used differently by the entity, the entity identified these as separate classes and measures commercial land using the revaluation model, and measures agricultural land using the cost model.

Any choice of accounting policy will depend on:

• How an entity defines a “class of assets” – which is a group of assets that are similar in nature or function in an entity’s operations, that is disclosed as a single item in the financial statements.
• The information needs of users of the financial statements – the choice of an accounting policy should facilitate decision-making and holding entities accountable, and the information should meet the qualitative characteristics.

This article reflects the views of the staff of the ASB and not the Board.