TMI - Tax Management India. Com

Home Acts & Rules Companies Law Rules Companies (Accounting Standards) Rules, 2021 Chapters List Annexure B Accounting Standard (AS) This

  • Login

Forget password       New User/ Regiser



 

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

Extract

..... ts. This Standard applies to bearer plants but it does not apply to the produce on bearer plants; and (b) wasting assets including mineral rights, expenditure on the exploration for and extraction of minerals, oil, natural gas and similar non-regenerative resources. However, this Standard applies to property, plant and equipment used to develop or maintain the assets described in (a) and (b) above. 4. Other Accounting Standards may require recognition of an item of property, plant and equipment based on an approach different from that in this Standard. For example, AS 19, Leases, requires an enterprise to evaluate its recognition of an item of leased property, plant and equipment on the basis of the transfer of risks and rewards. However, in such cases other aspects of the accounting treatment for these assets, including depreciation, are prescribed by this Standard. 5. Investment property, as defined in AS 13, Accounting for Investments, should be accounted for only in accordance with the cost model prescribed in this standard. Definitions 6. The following terms are used in this Standard with the meanings specified: Agricultural Activity is the management by an enterprise of the b .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... substituted for the cost in the books of account, without making any deduction for accumulated depreciation and accumulated impairment losses. An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. Property, plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than a period of twelve months. Recoverable amount is the higher of an asset’s net selling price and its value in use. The residual value of an asset is the estimated amount that an enterprise would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. Useful life is: (a) the period over which an asset is expected to be available for use by an enterprise; or (b) the number of production or similar units expected to be obtained from the asset by an enterprise. Recognition 7. The cost of an item of property, plant and equipment should be recognised as an asset if, and only if: ( .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... obtain the future economic benefits from its other assets. Such items of pro perty, plant and equipment qualify for recognition as assets because they enable an enterprise to derive future economic benefits from related assets in excess of what could be derived had those items not been acquired. For example, a chemical manufacturer may install new chemical handling processes to comply with environmental requirements for the production and storage of dangerous chemicals; related plant enhancements are recognised as an asset because without them the enterprise is unable to manufacture and sell chemicals. The resulting carrying amount of such an asset and related assets is reviewed for impairment in accordance with AS 28, Impairment of Assets. Subsequent Costs 12. Under the recognition principle in paragraph 7, an enterprise does not recognise in the carrying amount of an item of property, plant and equipment the costs of the day-to-day servicing of the item. Rather, these costs are recognized in the statement of profit and loss as incurred. Costs of day-to-day servicing are primarily the costs of labour and consumables, and may include the cost of small parts. The purpose of such exp .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... s an asset should be measured at its cost. Elements of Cost 17. The cost of an item of property, plant and equipment comprises: (a) its purchase price, including import duties and non-refundable purchase taxes,, after deducting trade discounts and rebates. (b) 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. (c) the initial estimate of the costs of dismantling, removing the item and restoring the site on which it is located, referred to as ‘decommissioning, restoration and similar liabilities’, the obligation for which an enterprise incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. 18. Examples of directly attributable costs are: (a) costs of employee benefits (as defined in AS 15, Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment; (b) costs of site preparation; (c) initial delivery and handling costs; (d) installation and assembly costs; (e) costs of testing whe .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... ough using a building site as a car park until construction starts. Because incidental operations are not necessary to bring an item to the location and condition necessary for it to be capable of operating in the manner intended by management, the income and related expenses of incidental operations are recognised in the statement of profit and loss and included in their respective classifications of income and expense. 23. The cost of a self-constructed asset is determined using the same principles as for an acquired asset. If an enterprise makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of constructing an asset for sale (see AS 2). Therefore, any internal profits are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of wasted material, labour, or other resources incurred in selfconstructing an asset is not included in the cost of the asset. AS 16, Borrowing Costs, establishes criteria for the recognition of interest as a component of the carrying amount of a self-constructed item of property, plant and equipment. 24. Bearer plants are accounted for in the same way as self-constructe .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... commercial substance, the enterprisespecific value of the portion of operations of the enterprise affected by the transaction should reflect post-tax cash flows. In certain cases, the result of these analyses may be clear without an enterprise having to perform detailed calculations. 28. The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If an enterprise is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident. 29. Where several items of property, plant and equipment are purchased for a consolidated price, the consideration is apportioned to the various items on the basis of their respective fair values at the date of acquisition. In case the fair values of the items acquired cannot be measured reliably, these values are estimated on a fair basis as deter .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... uation. Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years. 38. When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the asset is treated in one of the following ways: (a) the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. For example, the gross carrying amount may be restated by reference to observable market data or it may be restated proportionately to the change in the carrying amount. The accumulated depreciation at the date of the revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses; or (b) the accumulated depreciation is eliminated against the gross carrying amount of the asset. The amount of the adjustment of accumulated depreciation forms part of the increase or decrease in carrying amount that is accounted for in .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... ciation 45. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item should be depreciated separately. 46. An enterprise allocates the amount initially recognised in respect of an item of property, plant and equipment to its significant parts and depreciates each such part separately. For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft, whether owned or subject to a finance lease. 47. A significant part of an item of property, plant and equipment may have a useful life and a depreciation method that are the same as the useful life and the depreciation method of another significant part of that same item. Such parts may be grouped in determining the depreciation charge. 48. To the extent that an enterprise depreciates separately some parts of an item of property, plant and equipment, it also depreciates separately the remainder of the item. The remainder consists of the parts of the item that are individually not significant. If an enterprise has varying expectations for these parts, approximation techniques may be necessary to depreciate the remainder in a manner t .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... eases at the earlier of the date that the asset is retired from active use and is held for disposal and the date that the asset is derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use (but not held for disposal) unless the asset is fully depreciated. However, under usage methods of depreciation, the depreciation charge can be zero while there is no production. 58. The future economic benefits embodied in an asset are consumed by an enterprise principally through its use. However, other factors, such as technical or commercial obsolescence and wear and tear while an asset remains idle, often result in the diminution of the economic benefits that might have been obtained from the asset. Consequently, all the following factors are considered in determining the useful life of an asset: (a) expected usage of the asset. Usage is assessed by reference to the expected capacity or physical output of the asset. (b) expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used and the repair and maintenance programme, and the care and maintenance of the asset while .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... ccounted for as a change in an accounting estimate in accordance with AS 5. 64. A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method and the units of production method. Straight-line depreciation results in a constant charge over the useful life if the residual value of the asset does not change. The diminishing balance method results in a decreasing charge over the useful life. The units of production method results in a charge based on the expected use or output. The enterprise selects the method that most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. That method is applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic benefits or that the method is changed in accordance with the statute to best reflect the way the asset is consumed. 65. A depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. The revenue g .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... d directly to revaluation surplus in the owners’ interest to the extent of any credit balance existing in the revaluation surplus in respect of that asset. (b) in the event that a decrease in the liability exceeds the carrying amount that would have been recognized had the asset been carried under the cost model, the excess should be recognised immediately in the statement of profit and loss. (c) a change in the liability is an indication that the asset may have to be revalued in order to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Any such revaluation should be taken into account in determining the amounts to be taken to the statement of profit and loss and the owners’ interest under (a). If a revaluation is necessary, all assets of that class should be revalued. 69. The adjusted depreciable amount of the asset is depreciated over its useful life. Therefore, once the related asset has reached the end of its useful life, all subsequent changes in the liability should be recognised in the statement of profit and loss as they occur. This applies under both the cost model and the .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... t that it had held for rental to others should transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets should be recognised in revenue in accordance with AS 9, Revenue Recognition. 77. The disposal of an item of property, plant and equipment may occur in a variety of ways (e.g. by sale, by entering into a finance lease or by donation). In determining the date of disposal of an item, an enterprise applies the criteria in AS 9 for recognising revenue from the sale of goods. AS 19, Leases, applies to disposal by a sale and leaseback. 78. If, under the recognition principle in paragraph 7, an enterprise recognises in the carrying amount of an item of property, plant and equipment the cost of a replacement for part of the item, then it derecognises the carrying amount of the replaced part regardless of whether the replaced part had been depreciated separately. If it is not practicable for an enterprise to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or con .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... on from third parties for items of property, plant and equipment that were impaired, lost or given up that is included in the statement of profit and loss; and (e) the amount of assets retired from active use and held for disposal. 83. Selection of the depreciation method and estimation of the useful life of assets are matters of judgement. Therefore, disclosure of the methods adopted and the estimated useful lives or depreciation rates provides users of financial statements with information that allows them to review the policies selected by management and enables comparisons to be made with other enterprises. For similar reasons, it is necessary to disclose: (a) depreciation, whether recognised in the statement of profit and loss or as a part of the cost of other assets, during a period; and (b) accumulated depreciation at the end of the period. 84. In accordance with AS 5, an enterprise discloses the nature and effect of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in subsequent periods. For property, plant and equipment, such disclosure may arise from changes in estimates with respect to: (a) residual values; (b) t .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X

..... s, and are now required to be capitalised in accordance with the requirements of this Standard, should be capitalised at their respective carrying amounts. The spare parts so capitalised should be depreciated over their remaining useful lives prospectively as per the requirements of this Standard. 91. The requirements of paragraph 32 and paragraphs 34 - 44 regarding the revaluation model should be applied prospectively. In case, on the date of this Standard becoming mandatory, an enterprise does not adopt the revaluation model as its accounting policy but the carrying amount of item(s) of property, plant and equipment reflects any previous revaluation it should adjust the amount outstanding in the revaluation reserve against the carrying amount of that item. However, the carrying amount of that item should never be less than residual value. Any excess of the amount outstanding as revaluation reserve over the carrying amount of that item should be adjusted in revenue reserves. - Notes: 5 An Accounting Standard on Agriculture is under formulation, which will, inter alia, cover accounting for livestock. Till the time, the Accounting Standard on Agriculture is issued, accounting for li .....

X X   X X   Extracts   X X   X X

Login / Subscribe to Access Full Page

AS - 10 - Property, Plant and Equipment - Companies (Accounting Standards) Rules, 2021

X X   X X   Extracts   X X   X X