AS 10: Property, Plant and Equipment

1. ABC Ltd. is installing a new plant at its production facility. It provides you the
following information:

Rs.
Cost of the plant (cost as per supplier's invoice) 31,25,000
Estimated dismantling costs to be incurred after 2,50,000
5 years
Initial Operating losses before commercial 3,75,000
production
Initial delivery and handling costs 1,85,000
Cost of site preparation 4,50,000
Consultants used for advice on the acquisition of 6,50,000
the plant

You are required to compute the costs that can be capitalised for plant by ABC
Ltd., in accordance with AS 10: Property, Plant and Equipment.

2. Preet Ltd. is installing a new plant at its production facility. It has incurred these
costs:

1. Cost of the plant (cost per supplier’s invoice Rs. 50,00,000

plus taxes)
2. Initial delivery and handling costs Rs. 4,00,000
3. Cost of site preparation Rs. 12,00,000
4. Consultants used for advice on the acquisition Rs. 14,00,000
of the plant
5. Interest charges paid to supplier of plant for Rs. 4,00,000
deferred credit
6. Estimated dismantling costs to be incurred Rs. 6,00,000
after 7 years
7. Operating losses before commercial Rs. 8,00,000
production

Please advise Preet Ltd. on the costs that can be capitalised in accordance with
AS 10 (Revised).

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 3. In the year 2018-19, an entity has acquired a new freehold building with a
useful life of 50 years for Rs. 75,00,000. The entity desires to calculate the
depreciation charge per annum using a straight-line method. It has identified
the following components (with no residual value of lifts & fixtures at the end
of their useful life) as follows:

Component Useful life (Years) Cost

Land Infinite Rs. 10,00,000
Roof 25 Rs. 15,00,000
Lifts 20 Rs. 7,50,000
Fixtures 10 Rs. 2,50,000
Remainder of 50 Rs. 40,00,000
building
Rs. 75,00,000

Calculate depreciation for the year 2018-19 as per componentization method.

Also state the treatment, in case Roof requires replacement at the end of its
useful life.

4. Entity A, a supermarket chain, is renovating one of its major stores. The store
will have more available space for store promotion outlets after the renovation
and will include a restaurant. Management is preparing the budgets for the
year after the store reopens, which include the cost of remodeling and the
expectation of a 15% increase in sales resulting from the store renovations,
which will attract new customers.
Decide whether the remodeling cost will be capitalized or not as per provision
of AS 10 “Property plant & Equipment”.

5. Entity A has a policy of not providing for depreciation on PPE capitalized in

the year until the following year, but provides for a full year's depreciation in
the year of disposal of an asset. Is this acceptable?

6. Entity A purchased an asset on 1st January 2016 for Rs. 1,00,000 and the asset
had an estimated useful life of 10 years and a residual value of nil. On 1st
January 2020, the directors review the estimated life and decide that the asset
will probably be useful for a further 4 years. Calculate the amount of
depreciation for each year, if company charges depreciation on Straight Line
basis.

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 7. The following items are given to you:

ITEMS

(1) Costs of testing whether the asset is functioning properly, after deducting the
net proceeds from selling any items produced while bringing the asset to that
location and condition (such as samples produced when testing equipment);

(2) Costs of conducting business in a new location or with a new class of customer
(including costs of staff training);

(3) Any costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner intended by
management

(4) Costs of opening a new facility or business, such as, inauguration costs;

(5) Purchase price, including import duties and non–refundable purchase taxes,
after deducting trade discounts and rebates.

With reference to AS 10 “Property, Plant and Equipment”, classify the above items
under the following heads:

HEADS
(i) Purchase Price of PPE
(ii) Directly attributable cost of PPE or
(iii) Cost not included in determining the carrying amount of an item of PPE.

8. Neon Enterprise operates a major chain of restaurants located in different cities.

The company has acquired a new restaurant located at Chandigarh. The new-
restaurant requires significant renovation expenditure. Management expects
that the renovations will last for 3 months during which the restaurant will be
closed.

Management has prepared the following budget for this period –

Salaries of the staff engaged in preparation of restaurant before its opening Rs.
7,50,000

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 Construction and remodelling cost of restaurant Rs. 30,00,000

Explain the treatment of these expenditures as per the provisions of AS 10

"Property, Plant and Equipment".

9. Shrishti Ltd. contracted with a supplier to purchase machinery which is to be

installed in its Department A in three months' time. Special foundations were
required for the machinery which were to be prepared within this supply lead
time. The cost of the site preparation and laying foundations were Rs. 1,41,870.
These activities were supervised by a technician during the entire period, who
is employed for this purpose of Rs. 45,000 per month. The technician's services
were given by Department B to Department A, which billed the services at Rs.
49,500 per month after adding 10% profit margin.

The machine was purchased at Rs. 1,58,34,000 inclusive of IGST @ 12% for
which input credit is available to Shrishti Ltd. Rs. 55,770 transportation charges
were incurred to bring the machine to the factory site. An Architect was
appointed at a fee of Rs. 30,000 to supervise machinery installation at the
factory site.

Ascertain the amount at which the Machinery should be capitalized under AS

10 considering that IGST credit is availed by the Shristhi Limited. Internally
booked profits should be eliminated in arriving at the cost of machine.

AS 11: Effect of changes in Foreign Exchange Rates

1. Classify the following items as monetary or non-monetary item:

Share Capital
Trade Receivables
Investment in Equity shares
Fixed Assets.

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 2.

Exchange
Rate per $
Goods purchased on 1.1.2017 for US $ Rs. 75
15,000
Exchange rate on 31.3.2017 Rs. 74
Date of actual payment 7.7.2017 Rs. 73

You are required to ascertain the loss/gain for financial years 2016-17
and 2017-18, also give their treatment as per AS 11.

3. Rau Ltd. purchased a plant for US$ 1,00,000 on 01st February 2016, payable after
three months. Company entered into a forward contract for three months @ Rs.
49.15 per dollar. Exchange rate per dollar on 01st Feb. was Rs. 48.85. How will
you recognise the profit or loss on forward contract in the books of Rau Ltd.?

4. Mr. A bought a forward contract for three months of US$ 1,00,000 on 1 st

December at 1 US$ = Rs. 47.10 when exchange rate was US$ 1 = Rs. 47.02. On
31st December when he closed his books exchange rate was US$ 1 = Rs. 47.15.
On 31st January, he decided to sell the contract at Rs. 47.18 per dollar. Show how
the profits from contract will be recognised in the books.

5. AXE Limited purchased fixed assets costing $ 5,00,000 on 1st Jan. 2018 from an
American company M/s M&M Limited. The amount was payable after 6
months. The company entered into a forward contract on 1st January 2018 for
five months @ Rs. 62.50 per dollar. The exchange rate per dollar was as follows:

On 1st January, 2018 Rs. 60.75 per dollar

On 31st March, 2018 Rs. 63.00 per dollar

You are required to state how the profit or loss on forward contract would be
recognized in the books of AXE Limited for the year ending 2017-18, as per the
provisions of AS 11.

6. Assets and liabilities and income and expenditure items in respect of integral
foreign operations are translated into Indian rupees at the prevailing rate of
exchange at the end of the year. The resultant exchange differences in the case
of profit, is carried to other Liabilities Account and the Loss, if any, is charged
to revenue. You are required to comment in line with AS 11 .

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 7.
(i) ABC Ltd. a Indian Company obtained long term loan from WWW
private Ltd., a U.S. company amounting to Rs. 30,00,000. It was
recorded at US $1 = Rs. 60.00, taking exchange rate prevailing at the
date of transaction. The exchange rate on balance sheet date
(31.03.2018) was US $1 = Rs. 62.00.

(ii) Trade receivable includes amount receivable from Preksha Ltd.,Rs.

10,00,000 recorded at the prevailing exchange rate on the date of
sales, transaction recorded at US $1 = Rs. 59.00. The exchange rate on
balance sheet date (31.03.2018) was US $1 = Rs. 62.00.

You are required to calculate the amount of exchange difference and also
explain the accounting treatment needed in the above two cases as per AS 11
in the books of ABC Ltd.

8.
(i) Trade receivables as on 31.3.2019 in the books of XYZ Ltd. include an
amount receivable from Umesh Rs. 5,00,000 recorded at the
prevailing exchange rate on the date of sales, i.e. at US $ 1= Rs. 58.50.
US $ 1 = Rs. 61.20 on 31.3.2019.

Explain briefly the accounting treatment needed in this case as per

AS 11 as on 31.3.2019.

(ii) Power Track Ltd. purchased a plant for US$ 50,000 on 31st October,
2018 payable after 6 months. The company entered into a forward
contract for 6 months @Rs. 64.25 per Dollar. On 31st October, 2018,
the exchange rate was Rs. 61.50 per Dollar.
You are required to recognise the profit or loss on forward contract
in the books of the company for the year ended 31st March, 2019.

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