What are the two conditions that must be fulfilled for the recognition of Property, Plant, and Equipment (PPE)?

For Property, Plant, and Equipment (PPE) to be recognized in financial statements, two fundamental conditions must be satisfied: it must be probable that future economic benefits will flow to the entity from the asset, and the cost of the asset must be measurable reliably.

The first condition ensures that the asset has future economic benefits, which is essential for it to contribute to generating revenue for the business. This aligns with the concept that an asset should provide some form of benefit that can enhance a company's cash inflows, whether through the production of goods, the provision of services, or other means.

The second condition of reliable cost measurement is crucial for accurate financial reporting. If the cost of the asset cannot be measured reliably, it becomes difficult to record the asset at its true value and impacts the integrity of the financial statements. This is significant because accurate cost attribution affects financial ratios, asset valuation, and ultimately, the presentation of the financial health of the business.

Other choices presented do not align with the necessary criteria for PPE recognition. Conditions such as uniqueness or rarity do not apply to PPE, which can be both commonly produced and widely available, and the acquisition method through business combinations, while relevant for certain accounting treatments, is not a direct requirement for PPE recognition