AS 10 : PROPERTY, PLANT AND EQUIPMENT

Objective: The recognition of the assets, determination of their carrying amount and
depreciation charges and impairment losses to be recognised with respect to assets
e
What are PPE?
PPE are generally xed assets tangible in nature which are held in business for production or
supply of goods and services or for rental to others or for administrative purposes, to be used
for more than one accounting period and not held for sale in the normal course of business

Scope:
Apply to all 3 Levels of enterprises
1. this AS prescribe the accounting for PPE.
2. This AS does not apply on biological assets related to Agricultural activity other than bearer
plants.
3. This standard applies to bearer plants but it does not apply to the produce on bearer plants
4. Wasting assets including mineral rights, expenditure on the exploration and extraction of
minerals, oil, natural gas and similar non-regenerative resources

Biological asset is a living animal or plant and its core income producing a set of agricultural
activity therefore not covered by PPE

Bearer plant is a plant that is used in the production or supply of agricultural produce, is
expected to bear produce for more than a period of 12 months and has a remote likelihood of
being sold as a agricultural produce except for incidental scrap sale

Recognition criteria of PPE.

The cost of an item of PPE should be recognised as an asset if and only if:
• It is probable that future economic bene ts associated with the asset will ow to the
entity.
• The cost of the item can be measured reliably.

Spare parts are usually treated as inventory and recognise in PL account hasn’t been
consumed, but major spare parts and standby equipments are treated as PPE, when
they are expected to be used over more than one accounting period.
Measurement of Initial Cost of PPE
Initial measurement : An item of PPE once quali ed for recognition as an asset it will be initially
measured at its cos

What is cost of PPE?

• Purchase price + import duties +Non-refundable purchased taxes - trade discounts and
rebate
• Cost directly attributable to bringing the asset to the location and condition necessary for it to
be used in a manner intended by management
• Initial estimates of cost of dismantling or decommissioning, removal and site restoration at
present value if the entity has an obligation at the time of acquisition of an asset. AS. 29
prescribes the discounting of such provisions and provision is made at present value by
applying pre-tax discounting rate
exclusions from cost : admin and general overheads, cost of advertising i.e. opening a new facility
or launching a new product or service, operating losses, etc.

cost of self constructed assets :

Acquired under exchange of securities:

FV of the securities given up or FV of assets taken up whichever is more clearly evident.

Acquired under exchange of assets:

Generally FV is considered of any of the assets whichever is more clearly evident, but in
case FV is not available or commercial substance is lacking then the BV of the asset
given up will be the cost of the asset received after adjusting the boot money.
 xx

Restatementwoohod

of
Subsequent Cost incurred on an item of PPE:
Cost incurred after the PPE is recognised in the books is known as Subsequent cost.
Whether this cost should be capitalised or not depends whether it increases the
e ciency of the asset or not. If it increases the e ciency of the asset beyond its original
performance then it should be capitalised and the cost should also be measured reliably.
But if no increase in performance then charge the cost to the PL A/c.

the life of componentis

also different
100
dolors PIL Dn
son
 Losses A s L 8
Impairment
PPE the difference of B V F v
If BV Fu of
treated as an impairment loss
wi U be
BU I 00
Ey
F V
L
30
Imp
Loss
 Sm what are the disclosure
requir ments
asper
his I 0

B I
Q 1. As per AS 10 property plant and equipment, expenditure that increases the future
benefits from the existing asset beyond its previously assessed standard of performance is
included in the gross book value, e.g., an increase in capacity. Hence, in the given case, Repairs
amounting ₹ 5 lakhs and Partial replacement of roof tiles should be charged to profit
and loss statement. ₹ 10 lakhs incurred for substantial improvement to the electrical writing
system which will increase efficiency should be capitalized.

Q 4. As per AS 10 “property plant and equipment”, fixed asset acquired in exchange for shares
or other securities in the enterprise should be recorded at its fair market value, or the
fair market value of the securities issued, whichever is more clearly evident. Since, in the given
situation, the market value of the shares exchanged for the asset is more clearly evident,
the company should record the value of machinery at ₹ 7,12,500 (i.e., 7,500 shares x ₹ 95
per share) being the market price of the shares issued in exchange.

Q 5. As per AS 10 property plant and equipment, Change in useful economic life of an asset &
residual value is change in accounting estimate, which is to be applied prospectively, i.e., the
depreciation charge will need to be recalculated.
At the end of the 8th year the asset’s net book value is ₹ 56,000 ( 200000 - 144000).
The company should amend the annual provision for depreciation to charge the unamortised cost
(namely, ₹ 56,000) over the revised remaining life of four years. Consequently, it should charge
depreciation for the next four years at ₹11,500 per annum.

2001000 20.000 18000 8 E 194 ooo

Dep for 84ns 0
56000 10000 Eli Soo p.ae
Last 4 yrs
Dep for 4
Qd Cal of cost Plant to be capitalised
of
Particulars E
cost
of the plant 2500,000
Initial Delivery
handling cost sooooo
Cost
of site Preparation 600,00
t consultation fees too ooo
PV cost 300,000
Costof Dismantling
to be capitalised 4300 ooo
of plant

EI Cala cost to be
of of machinery
capitalised
Particulars E
Purchase Price 5278 ooo
44 Sales tan 211,120
5489,120
cost of site preparations
Laying foundations 47,290
1
Supervisors Salary 11500 30
2 ooo
1
Transport changes 18,590
Architect's fees 10 ooo

cost 5595,00
of machinery
Notes c It is that 4
assumed
sales tan is not included in the
purchase price as it is not
refundable
2 Internal profits w v't
supervisors salary shall be
eberutnated
3 O D shall
Interest on not
the
form cost of machinery