Trees that are planted to only generate carbon offsets will not be accounted for under IAS 41 or as a bearer plant under IAS 16 as the trees serve no other purpose. They are tangible assets held for use in the ‘production’ of carbon offsets over a long term and, therefore, meet the definition of property, plant and equipment under IAS 16 and will be accounted for in accordance with IAS 16.

Expenditures to establish and develop the trees and related borrowing costs need to be assessed against the capitalisation criteria under IAS 16 and IAS 23 based on specific facts and circumstances. Entities should estimate the residual value (for example scrap sales) and the useful lives of trees considering its economic life during which they can absorb carbon dioxide. They should determine an appropriate method of depreciation by considering the pattern in which carbon offsets are expected to be generated from them. The depreciation charge will be included in the cost of carbon offset inventories.