ACCA Taxation (F6) Practice Exam

If an asset performs a function, is it categorized as plant?

1. Yes, it is considered plant

2. No, it is not

3. Only if it functions optimally

4. Only if used in manufacturing

The correct answer is: Yes, it is considered plant

An asset is categorized as plant if it performs a function that is integral to the operation of a business, typically involving equipment or machinery that aids in the production or provision of services. The classification hinges on the asset's role and its contribution to the operational processes rather than its optimal functioning or the specifics of its use. For something to be classified as plant, it must not only be functional but must also provide a benefit to the trade or business, facilitating production or enhancing services. Therefore, the essential criterion here is functionality in the context of the business rather than other factors like condition, exclusivity to manufacturing, or whether it functions at an optimal level. This principle aligns with tax definitions that often aim for clarity about what qualifies for capital allowances or deductions. Consequently, assets that perform functions relevant to the business, regardless of their use in manufacturing or their operating state, will typically meet the criteria for being classified as plant.