## Spare Parts, Tools and Servicing Equipment — Classification

### The Decision Rule

Classification depends on whether the item meets the definition of PPE:

```

Spare Part / Tool / Servicing Equipment

Does it meet the definition of PPE?

| |

YES NO

| |

Covered under Treated as

AS 10 (PPE) Inventory (AS 2)

Capitalize Expense as used

```

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### PPE Definition — Key Criteria

An item qualifies as PPE when it is:

1. Held for use in production / supply of goods or services, rental, or administration

2. Expected to be used for more than one accounting period

3. Cost can be reliably measured

---

### Practical Examples

Item	Classification	Reason
Major stand-by engine for a specific turbine	PPE (AS 10)	Used > 1 period; tied to specific asset
Safety equipment required to operate a machine	PPE (AS 10)	Integral to asset's operation
Routine nuts and bolts replaced frequently	Inventory (AS 2)	Consumed within one period
Consumable lubricants and cleaning supplies	Inventory (AS 2)	Short-term consumables

⚠️ Common exam mistakes

Automatically treating all spare parts as inventory (AS 2) without checking whether they meet the PPE definition
Classifying major stand-by equipment as inventory simply because it has not yet been physically used
Expensing the cost of major spare parts that qualify as PPE instead of capitalizing them under AS 10

Bare-Act text Para 8 · AS 10 — Property, Plant and Equipment (ICAI) · click to expand

Spare parts, stand-by equipment and servicing equipment are recognised in accordance with this Standard when they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory.

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AS 10 PPE — Classification of Spare Parts, Tools and Servicing Equipment

⚠️ Common exam mistakes