AS 10: PROPERTY, PLANT AND EQUIPMENT

Scope of the Standard

Property, Plant and Equipment (PPE)
Items of acquired for safety or
environmental reasons

Items of PPE may also be acquired for

safety or environmental reasons
(although not directly increasing the
future economic benefits of any
particular existing item of PPE, may be
necessary for an enterprise to obtain
the future economic benefits from its
other assets
Biological Asset :-
Bearer Plant

 Bearer Plant: Is a plant that (satisfies all 3

conditions)
RECOGNITION CRITERIA FOR PPE

It is probable that future

economic benefits
The cost of an associated with the item
will flow to the
item of PPE enterprise, and
should be
recognised as an
asset if, and only
if: The cost of the item can
be measured reliably
Treatment of Spare Parts, Stand by Equipment and
Servicing Equipment

Case I If they meet the

definition of PPE as per AS
10:

Recognised as
PPE as per AS 10
Treatment of Subsequent Costs

Cost of day-to-day
servicing (repair &
Maintenance)

Charged to profit
and Loss A/c
The cost of “Remodelling” a
Supermarket
Measurement of PPE
Elements of Cost

Purchase Price:
• It includes import duties and non –refundable purchase taxes.
• It requires deduction of Trade discounts and rebates

Directly Attributable Costs:

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
Examples of directly attributable
costs are
1. Costs of site preparation
2. Initial delivery and handling costs
3. Installation and assembly costs
4. 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)
5. Professional fees
Costs Do not included in the carrying amount of an item
of PPE

 Costs incurred while an item capable of

operating in the manner intended by
management has yet to be brought into use
or is operated at less than full capacity.
 Initial operating losses,
 Costs of relocating or reorganising.
 Costs of opening a new facility or business
(Such as, Inauguration costs)
 Costs of introducing a new product or service

(including costs of advertising and

promotional activities)
 Costs of conducting business in a new

location or with a new class of customer

(including costs of staff training)
 Administration and other general overhead

costs
Cost of a Self-constructed Asset

Cost of a self-constructed asset is always

determined at COST
 Internal profits are eliminated
 Abnormal amounts of wasted material,

labour, or other resources incurred in self

constructing an asset is not included.
 Bearer plants are accounted for in the same

way as self-constructed items of PPE

PPE acquired in Exchange for a Non-
monetary Asset
Cost of such an item of PPE is measured at fair
value unless:
 Exchange transaction lacks commercial

substance; Or
 Fair value of neither the asset(s) received nor

the asset(s) given up is reliably measurable.

If the acquired item(s) is/are not measured at fair

value, its/their cost is measured at the carrying
amount of the asset(s) given up.
An exchange transaction has commercial substance
if:its future cash flows are expected to change as a
result of the transaction.
 Entity A exchanges car X with a book value of
` 13,00,000 and a fair value of ` 13,25,000
for cash of ` 15,000 and car Y which has a
fair value of ` 13,10,000. The transaction
lacks commercial substance as the company’s
cash flows are not expected to change as a
result of the exchange. It is in the same
position as it was before the transaction.
What will be the measurement cost of the
assets received
ASSET ACQUIRED ON EXCHANE OF ANOTHER ASSET

FMV of Asset Given

up FMV of Asset Acquired

If Fair value of neither the asset received nor the asset given
up is reliably measurable. Then it is measured at the
carrying amount of the asset given up.
PPE purchased for a Consolidated
Price
Where several items of PPE 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.
 Measurement after Recognition

Cost model, Revaluation model

Condition for Revaluation
 Entire class of PPE to which that asset
belongs should be revalued,

 Examples of separate classes: Land, Land and

Buildings, Machinery, Ships, Aircraft, Motor
Vehicles
Entity A owns a number of industrial buildings,
such as factories and warehouses and office
buildings in several capital cities. Entity A's
management want to apply the revaluation
model to the office buildings but continue to
apply the historical cost model to the
industrial buildings.
 State whether this is acceptable under AS 10

(Revised) or not with reasons?

Frequency of Revaluations

Items of PPE experience significant and volatile

changes in Fair value.
Annualy
Items of PPE with only insignificant changes in
Fair value
3 to 5 years
Cost Model
=Cost - Any Accumulated Depreciation
- Any Accumulated Impairment losses
Revaluation Model
 Technique 1:

Accumulated depreciation
Gross carrying amount

May be restated by reference Adjusted to equal the

to observable market data difference between the gross
or proportionately to the carrying amount and the
change in the carrying carrying amount of the asset
amount after taking into account
accumulated impairment
losses
Example on Technique I

 PPE is revalued to 1,500 consisting of `

2,500 Gross cost and Rs 1,000 Depreciation
based on observable market data
Technique 2
Accumulated depreciation Is eliminated against
the Gross Carrying amount of the asset
 Revaluation Reserve

Profit Subsequent Time

First Time
Loss
First Revaluation First Revaluation
(Upward) (downward)

Credite Los Loss

Debite Profit
d to Profit s
d to
Revalu
Profit
ation
& Loss
Reserv Adjust
A/c To the Extend of
e with
Credited Earlier Written Debite
to Revaluat
off transfer to P d to
Revalua ion
& L and Balance Profit
tion Reserve
credited to & Loss
Reserve &
Revaluation A/c
Balance
Transfer Reserve
to P & L
A/c
The revaluation surplus
included in owners’
interests in respect of
an item of PPE may be
transferred to the
Revenue Reserves
when the asset is
derecognised.
 Treatment of Revaluation Surplus
Option 1 Option 2

Some of the surplus

whole surplus may be transferred
is transferred as the asset is used
by an enterprise

ONLY When the

asset In such a case, the
amount of the surplus
is:Retired; Or transferred would be:
Disposed of Depreciation (based on
Revalued Carrying
amount) – Depreciation
(based on Original Cost)
 Transfer an amount equal to the excess depreciation
(difference between new depreciation and old depreciation)
from the revaluation surplus to Revenue Reserve
DEPRECIATION

Depreciation charge for each

period should be recognised in the
Statement of Profit and Loss unless
it is included in the carrying
amount of another asset.

AS 2: Depreciation of
manufacturing plant and
equipment is included in the costs
of conversion of inventories as per
AS 2.
Depreciable amount = Cost- Residual value

Residual value and the useful life of an asset should be

reviewed at least at each financial year-end and, if expectations
differ from previous estimates, the change(s) should be
accounted for as a change in an accounting estimate
Commencement of period for charging Depreciation

Depreciation of an
asset begins when it
is available for use
 Each part of an item of PPE with a cost that is
significant in relation to the total cost ofthe
item should be depreciated separately.
 Example : It may be appropriate to depreciate

separately the airframe and engines ofan

aircraft, whether owned or subject to a
finance lease.
Is Grouping of Components possible?
Yes.
 A significant part of an item of PPE 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.
 Entity A has a policy of not providing for
depreciation on PPE capitalised 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?
Depreciation Method based on
Revenue
 :
 A depreciation method that is based on

revenue that is generated by an activity that

includes the use of an asset is not
appropriate.
 Entity B manufactures industrial chemicals and
uses blending machines in the production
process. The output of the blending machines is
consistent from year to year and they can be
used for different products.
 However, maintenance costs increase from year
to year and a new generation of machines with
significant improvements over existing
machines is available every 5 years. Suggest the
depreciation method to the management
Cessesation of Depreciation

when asset’s residual value exceeds

its carrying amount

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
Land and Buildings

Land and buildings are separable assets and are accounted

for separately, even when they are acquired together

Land: Land has an unlimited useful life and therefore is not

depreciated

Buildings: Buildings have a limited useful life and therefore

are depreciable assets
An increase in the value of the
land on which a building stands
does not affect the
determination of the depreciable
amount of the building.
Depreciation Method
The method selected 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.
 Change in
Depreciation
Method should be
accounted for as a
change in an
ACCOUNTING
ESTIMATE
Changes In Cost of PPE

The cost of PPE may undergo changes subsequent

to its acquisition or construction on account of:
1. Changes in Liabilities
2. Price Adjustments
3. Changes in Duties
4. Changes in initial estimates of amounts
provided for Dismantling, Removing,
Restoration, and
5. Similar factors
The above are Adjusted in the cost of the asset
Retirement

Items of PPE retired from active

use and held for disposal should
be stated at the lower of:

Carrying Amount, Net Realisable

and Value.
Any write-down in this regard should be
recognised immediately in the Statement of
Profit and Loss. Gains should not be classified
as revenue, as defined in AS 9 ‘Revenue
Recognition’