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ACCOUNTING STANDARD-10:
PROPERTY PLANT & EQUIPMENT
INDEX
Nikhil 2
1 Applicability & Nature 3
2 Meaning of Tangible Assets 4
3 Assets out of Scope 5
4 Initial Recognition 6
5 Subsequent Recognition 11
6 Measurement of PPE 12
7 Depreciation 15
8
Change in Estimated
De-Commissioning cost
19
9 Retirement of Assets 20
10 De-Recognition of PPE 21
Nikhil 3
Applicability & Nature
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Applicability:
Accounting Standard-10 is applicable from 01.04.2016 onwards (As per Companies Accounting Standards Amendment Rules with effect from 30.03.2016)
Nature:
Accounting Standard-10 is mandatory for all enterprises (Except for those companies which are applying Indian Accounting Standards[IND-AS])
Nikhil 4
Meaning of Tangible Assets
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Tangible Assets under AS-10
Condition-1 Condition-2 Condition-3 Condition-4
Held for use for production of
Goods/Supply of Services or for
Administrative purpose or for
Selling & Distribution
Department.
OR
Held for Rental Purpose as a
Investment Property or Leased
Assets.
Assets is held for More than 12
months.
Assets should have some
economic benefits for the
enterprise.
Cost of Assets should be
determinable for its recognition.
Nikhil 5
Assets out of Scope
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Assets Not covered under AS-10
Wasting AssetsBiological Assets (Covered under IND-AS 41)
Living Animals
Trees/Plants
(except Bearer
Plant)
Mineral Oils, Ores,
Gases or similar
Non- Regenerative
Assets
Bearer Plant
Bearer Plants are the trees which are held for Agricultural Produce for more than 12 months.
Nikhil 6
Initial Recognition
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Initial Recognition of PPE
Situation-1 Situation-2 Situation-3 Situation-4 Situation-5
Purchase of Assets:
By Cash (Slide 7)
Self Constructed
Assets (Slide 8)
Hire Purchased
Assets (Slide 8)
Exchange of Assets
(Slide 9)
Some Other
Clarifications (Slide
10)
Nikhil 7
Situation-1
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
By Cash
Items to be included in
cost of PPE
Items to be excluded from
cost of PPE
Purchase Price (Net of Trade Discount)
(+) Non-Refundable/Adjustable Taxes & Duties
(+) Other Related Expenses:
(a) Transportation Charges
(b) Loading/Unloading Charges
(c) Installation Charges
(d) Transit Insurance
(e) Professional Fees
(f) Start up & Commissioning Cost
(g) Site Preparation Expenses
(h) Any other Expenses which is
required to be included for bringing
PPE to their present location.
(+) Present Value of Decommissioning Cost/
Cost of Removal/Cost of Disposal
(a) Inauguration Cost for opening new
business.
(b) Advertisement/Promotional Cost for new
product.
(c) Staff Training Cost.
(d) Administration Overheads/Abnormal Loss
at initial stage of business.
(e) Relocation Cost (Shifting of Assets from
one location to another)
Nikhil 8
Situation-2 & Situation-3
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Self Constructed
Assets
Direct Material
(+) Direct Wages
(+) Direct Expenses
(+) Allocable Overheads
(-) Internal Profit to be
eliminated(if any)
Cost of PPE
* Abnormal Loss if occurred during the stage of self
construction then such loss should not be considered
as cost of PPE.
Hire Purchase
Assets
(i) Cost of Asset should be considered equivalent to cash price of the
Asset.
(ii) If any interest is paid then it will go to Statement of Profit & Loss over
the credit period but the amount of interest will not be considered as
a part of cost of PPE unless AS-16 on ‘Borrowing Cost’ allows.
Nikhil 9
Situation-4
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Exchange of Assets
First Preference: Fair Value of Assets acquired
Example: New Car Purchased for Rs.7lakhs. In
Exchange old car given up at Rs.1lakh which has a
carrying amount/Book value of Rs.80,000. Pass Journal
entry.
Solution: Car A/c(New)- Dr. 7,00,000
To Car A/c(Old) 80,000(BV)
To Profit on Sale 20,000
To Cash A/c 1,00,000
(Being Exchange of Assets)
Second Preference: Fair Value of Assets given
Example: Building acquired by issuing 10,000 shares @
Rs.15 per share having a face value of Rs.10 per share.
Pass Journal entry.
Solution: Building A/c- Dr. 1,50,000
To Share Capital A/c 1,00,000
To Securities Premium A/c 50,000
(Being Shares for acquisition of
Building)
Third Preference: Carrying Amount of
given up Assets
Example: New Assets acquired by giving up
old Assets having a carrying amount of
Rs.80,000. Pass Journal Entry.
Solution: Assets A/c(New)- Dr. 80,000
To Assets A/c(Old) 80,000
(Being Exchange of Assets)
Nikhil 10
Situation-5
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Some Other Clarifications
i. The entity can write off any Property, Plant & Equipment which is not having significant value ( No need to capitalize the value of such Asset).
ii. We can consider small value similar Assets in the same group (i.e. Mouldings etc.)
iii. Safety & Environmental equipments should also be considered as Tangible Assets.
iv. Irregular Service/ Stand by equipments or spare parts should be accounted for under Accounting Standard-10 (Regular spare parts/ service equipments shall
be considered as a part of Accounting Standard-2 on “Inventory Valuation”.
Nikhil 11
Subsequent Recognition
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Scenarios
Day to Day Services Replacement of Assets Inspection Cost
It will be Written off to Statement of Profit &
Loss Account (It also includes Replacement
of small parts).
It will be capitalized to the cost of Property,
Plant & Equipment.
Small Cost Major Cost
To be written off to
Statement of Profit
& Loss
To be Capitalized
to cost of Property,
Plant & Equipment
Nikhil 12
Measurement of PPE
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Measurement of PPE
Revaluation ModelCost Model
Key Points
 If Revaluation Model is selected then it will be applied for all the assets in the same class. But other assets will not be affected by revaluation.’
 If value changes frequently then consider- Revaluation each year.
 If changes are not material then consider revaluation between 3-5 years.
 Fair value of revaluation should be based on evidence generated by “Certified valuer”. If revaluation of rare assets is to be done then we should consider Income
approach.
Note:
Selection of model depends upon choice of enterprise.
Recommendation:
For True & Fair presentation revaluation model is recommended.
Nikhil 13
How to Record assets on revaluation
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Methods of Recording Assets
Gross MethodNet Method
Example: Original Cost of Plant & Machinery: Rs.10,000
Accumulated Depreciation: Rs.2,000
Revalued Price: Rs.16,000
Pass Journal Entry for Revaluation.
Solution: Provision for Depreciation A/c- Dr. 2,000
To Assets A/c 2,000
(Being Accumulated Dep. A/c closed)
Assets A/c- Dr. 8,000
To Revaluation Reserve A/c 8,000
(Being Upward Revaluation made)
Example: Original Cost of Plant & Machinery: Rs.10,000
Accumulated Depreciation: Rs.2,000
Revalued Price: Rs.16,000
Pass Journal Entry for Revaluation.
Solution: Increase original cost & Accumulated Depreciation by Upward
revaluation.
Original Cost Depreciation WDV
Existing 10,000 (2,000) 8,000
Upward revaluation 10,000 (2,000) 8,000
Revalued Amount 20,000 (4,000) 16,000
Assets A/c-Dr. 10,000
To Accumulated Depreciation A/c 2,000
To Revaluation Reserve A/c 8,000
(Being upward Revaluation made)
Nikhil 14
Different cases of Revaluation
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Case1: If Revalued assets are depreciated then the amount of extra depreciation due to increase in value shall be amortized from Revaluation reserve to General reserve as
follows-
Revaluation Reserve A/c- Dr.
To General Reserve A/c
Case2: If assets are de-recognized/sold then outstanding balance in Revaluation reserve will be transferred to General reserve.
Case3: Revaluation & Impairment Relationship:
Situation1: Initially Revalued and Subsequently Impaired
 Charge Impairment loss against Revaluation reserve first.
 If loss is higher than Revaluation Reserve then balance should be charged to Profit & Loss Account.
Situation2: Initially Impaired and Subsequently Revalued
 First Impairment loss should be reversed to Profit & Loss Account.
 If increase in value becomes higher than Impairment loss then create Revaluation Reserve.
Nikhil 15
Depreciation (Previously covered in AS-6)
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Entity
Corporate EntityNon-Corporate Entity
Consider Rules of AS-10
Consider Rules of AS-10 + Schedule-3 +
Guidance Note
Rule1: Methods of Depreciation (Slide16)
Rule2: Change in Estimated Life & Salvage Value (Slide17)
Rule3: Component Based Depreciation (Slide18)
Rule4: Commencement & Cessation of Depreciation (Slide18)
Nikhil 16
Rule1: Methods of Depreciation
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Methods of Depreciation
Unit of ProductionWritten Down ValueStraight Line Method
Amount of Depreciation will be same over the
useful life of asset.
Amount of Depreciation will be decreasing over
the useful life of asset.
Depreciation will be charged on the units of
production
Notes:
a) Selection of method should be based on true & fair presentation of Financial statements.
b) The method of Depreciation should be reviewed at the end of each year.
c) The method of Depreciation if requires change, then it will be considered as change in estimates. There will be no adjustments in the Financial Statements of
previous years.
Nikhil 17
Rule2: Change in Estimates & Salvage Value
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Example: Cost of Asset- Rs.1,00,000
Salvage value of Asset- Rs.10,000
Estimated Life of Asset- 10years (SLM)
After 3 years it is estimated that remaining useful life of asset is 5 years an revised salvage value is Rs.6,000. Calculate revise amount of Depreciation.
Solution: Statement showing Revised Depreciation
Particulars Rs.
Original Cost 1,00,000
(-) Salvage Value (10,000)
Depreciable Amount 90,000
(-) Depreciation for 3 years (90,000/10*3) (27,000)
Remaining Amount 63,000
(+) Loss due to decline in Salvage Value (10,000(-)6,000) 4,000
Total: (A) 67,000
Revised life: (B) 5 years
Revised Depreciation: (A/B) 13,400
Nikhil 18
Rule3 & Rule4
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Rule3: Component Based
Depreciation
As per new provisions, component based
depreciation is also allowed. But value of each
component should be significant to total cost for
separate depreciation.
Note:
Components can be grouped if their useful life is
same.
Rule4: Commencement &
Cessation
Depreciation
Commencement Cessation
It will start from the
date from which it
becomes ready for use
It will cease from the
date at which asset is
retired from use or
sold whichever is
earlier
Nikhil 19
Change in Estimated De-Commissioning Cost
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
What is Decommissioning Cost:
Decommissioning cost (also known as asset retirement obligation) is the cost incurred by companies in reversing the modifications made to landscape when a fixed asset is
used up. An oil well offers a good example of asset that carries significant decommissioning cost.
Change in Estimated Decommissioning Cost
If change in Decommissioning Cost takes place then such change will be added or deducted from the cost of Asset. It will also be considered as change in estimate.
Nikhil 20
Retirement of Assets
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
Retirement of Assets
Accounting Standard-10 explains, retired assets should be held at:
Carrying Amount Net Realizable ValueOR
Whichever is “LOWER”
Note:
If Net Realizable value becomes lower than carrying amount then loss will be written off to Statement of Profit & Loss.
Nikhil 21
De-Recognition of PPE
Applicability & Nature
Meaning of Tangible
Assets
Assets out of Scope Initial Recognition
Subsequent
Recognition
Measurement of
PPE
Depreciation
Change in
Estimated De-
commissioning cost
Retirement of
Assets
De-Recognition of
PPE
De-Recognition of PPE
Loss on SaleProfit on Sale
If any asset is de-recognized then:
OR
Transferred to Statement of
Profit & Loss
Note:
For De-Recognition of revalued Assets refer Measurement of PPE Rules

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Accounting Standard-10 Property, Plant & Equipment

  • 2. INDEX Nikhil 2 1 Applicability & Nature 3 2 Meaning of Tangible Assets 4 3 Assets out of Scope 5 4 Initial Recognition 6 5 Subsequent Recognition 11 6 Measurement of PPE 12 7 Depreciation 15 8 Change in Estimated De-Commissioning cost 19 9 Retirement of Assets 20 10 De-Recognition of PPE 21
  • 3. Nikhil 3 Applicability & Nature Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Applicability: Accounting Standard-10 is applicable from 01.04.2016 onwards (As per Companies Accounting Standards Amendment Rules with effect from 30.03.2016) Nature: Accounting Standard-10 is mandatory for all enterprises (Except for those companies which are applying Indian Accounting Standards[IND-AS])
  • 4. Nikhil 4 Meaning of Tangible Assets Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Tangible Assets under AS-10 Condition-1 Condition-2 Condition-3 Condition-4 Held for use for production of Goods/Supply of Services or for Administrative purpose or for Selling & Distribution Department. OR Held for Rental Purpose as a Investment Property or Leased Assets. Assets is held for More than 12 months. Assets should have some economic benefits for the enterprise. Cost of Assets should be determinable for its recognition.
  • 5. Nikhil 5 Assets out of Scope Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Assets Not covered under AS-10 Wasting AssetsBiological Assets (Covered under IND-AS 41) Living Animals Trees/Plants (except Bearer Plant) Mineral Oils, Ores, Gases or similar Non- Regenerative Assets Bearer Plant Bearer Plants are the trees which are held for Agricultural Produce for more than 12 months.
  • 6. Nikhil 6 Initial Recognition Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Initial Recognition of PPE Situation-1 Situation-2 Situation-3 Situation-4 Situation-5 Purchase of Assets: By Cash (Slide 7) Self Constructed Assets (Slide 8) Hire Purchased Assets (Slide 8) Exchange of Assets (Slide 9) Some Other Clarifications (Slide 10)
  • 7. Nikhil 7 Situation-1 Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE By Cash Items to be included in cost of PPE Items to be excluded from cost of PPE Purchase Price (Net of Trade Discount) (+) Non-Refundable/Adjustable Taxes & Duties (+) Other Related Expenses: (a) Transportation Charges (b) Loading/Unloading Charges (c) Installation Charges (d) Transit Insurance (e) Professional Fees (f) Start up & Commissioning Cost (g) Site Preparation Expenses (h) Any other Expenses which is required to be included for bringing PPE to their present location. (+) Present Value of Decommissioning Cost/ Cost of Removal/Cost of Disposal (a) Inauguration Cost for opening new business. (b) Advertisement/Promotional Cost for new product. (c) Staff Training Cost. (d) Administration Overheads/Abnormal Loss at initial stage of business. (e) Relocation Cost (Shifting of Assets from one location to another)
  • 8. Nikhil 8 Situation-2 & Situation-3 Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Self Constructed Assets Direct Material (+) Direct Wages (+) Direct Expenses (+) Allocable Overheads (-) Internal Profit to be eliminated(if any) Cost of PPE * Abnormal Loss if occurred during the stage of self construction then such loss should not be considered as cost of PPE. Hire Purchase Assets (i) Cost of Asset should be considered equivalent to cash price of the Asset. (ii) If any interest is paid then it will go to Statement of Profit & Loss over the credit period but the amount of interest will not be considered as a part of cost of PPE unless AS-16 on ‘Borrowing Cost’ allows.
  • 9. Nikhil 9 Situation-4 Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Exchange of Assets First Preference: Fair Value of Assets acquired Example: New Car Purchased for Rs.7lakhs. In Exchange old car given up at Rs.1lakh which has a carrying amount/Book value of Rs.80,000. Pass Journal entry. Solution: Car A/c(New)- Dr. 7,00,000 To Car A/c(Old) 80,000(BV) To Profit on Sale 20,000 To Cash A/c 1,00,000 (Being Exchange of Assets) Second Preference: Fair Value of Assets given Example: Building acquired by issuing 10,000 shares @ Rs.15 per share having a face value of Rs.10 per share. Pass Journal entry. Solution: Building A/c- Dr. 1,50,000 To Share Capital A/c 1,00,000 To Securities Premium A/c 50,000 (Being Shares for acquisition of Building) Third Preference: Carrying Amount of given up Assets Example: New Assets acquired by giving up old Assets having a carrying amount of Rs.80,000. Pass Journal Entry. Solution: Assets A/c(New)- Dr. 80,000 To Assets A/c(Old) 80,000 (Being Exchange of Assets)
  • 10. Nikhil 10 Situation-5 Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Some Other Clarifications i. The entity can write off any Property, Plant & Equipment which is not having significant value ( No need to capitalize the value of such Asset). ii. We can consider small value similar Assets in the same group (i.e. Mouldings etc.) iii. Safety & Environmental equipments should also be considered as Tangible Assets. iv. Irregular Service/ Stand by equipments or spare parts should be accounted for under Accounting Standard-10 (Regular spare parts/ service equipments shall be considered as a part of Accounting Standard-2 on “Inventory Valuation”.
  • 11. Nikhil 11 Subsequent Recognition Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Scenarios Day to Day Services Replacement of Assets Inspection Cost It will be Written off to Statement of Profit & Loss Account (It also includes Replacement of small parts). It will be capitalized to the cost of Property, Plant & Equipment. Small Cost Major Cost To be written off to Statement of Profit & Loss To be Capitalized to cost of Property, Plant & Equipment
  • 12. Nikhil 12 Measurement of PPE Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Measurement of PPE Revaluation ModelCost Model Key Points  If Revaluation Model is selected then it will be applied for all the assets in the same class. But other assets will not be affected by revaluation.’  If value changes frequently then consider- Revaluation each year.  If changes are not material then consider revaluation between 3-5 years.  Fair value of revaluation should be based on evidence generated by “Certified valuer”. If revaluation of rare assets is to be done then we should consider Income approach. Note: Selection of model depends upon choice of enterprise. Recommendation: For True & Fair presentation revaluation model is recommended.
  • 13. Nikhil 13 How to Record assets on revaluation Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Methods of Recording Assets Gross MethodNet Method Example: Original Cost of Plant & Machinery: Rs.10,000 Accumulated Depreciation: Rs.2,000 Revalued Price: Rs.16,000 Pass Journal Entry for Revaluation. Solution: Provision for Depreciation A/c- Dr. 2,000 To Assets A/c 2,000 (Being Accumulated Dep. A/c closed) Assets A/c- Dr. 8,000 To Revaluation Reserve A/c 8,000 (Being Upward Revaluation made) Example: Original Cost of Plant & Machinery: Rs.10,000 Accumulated Depreciation: Rs.2,000 Revalued Price: Rs.16,000 Pass Journal Entry for Revaluation. Solution: Increase original cost & Accumulated Depreciation by Upward revaluation. Original Cost Depreciation WDV Existing 10,000 (2,000) 8,000 Upward revaluation 10,000 (2,000) 8,000 Revalued Amount 20,000 (4,000) 16,000 Assets A/c-Dr. 10,000 To Accumulated Depreciation A/c 2,000 To Revaluation Reserve A/c 8,000 (Being upward Revaluation made)
  • 14. Nikhil 14 Different cases of Revaluation Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Case1: If Revalued assets are depreciated then the amount of extra depreciation due to increase in value shall be amortized from Revaluation reserve to General reserve as follows- Revaluation Reserve A/c- Dr. To General Reserve A/c Case2: If assets are de-recognized/sold then outstanding balance in Revaluation reserve will be transferred to General reserve. Case3: Revaluation & Impairment Relationship: Situation1: Initially Revalued and Subsequently Impaired  Charge Impairment loss against Revaluation reserve first.  If loss is higher than Revaluation Reserve then balance should be charged to Profit & Loss Account. Situation2: Initially Impaired and Subsequently Revalued  First Impairment loss should be reversed to Profit & Loss Account.  If increase in value becomes higher than Impairment loss then create Revaluation Reserve.
  • 15. Nikhil 15 Depreciation (Previously covered in AS-6) Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Entity Corporate EntityNon-Corporate Entity Consider Rules of AS-10 Consider Rules of AS-10 + Schedule-3 + Guidance Note Rule1: Methods of Depreciation (Slide16) Rule2: Change in Estimated Life & Salvage Value (Slide17) Rule3: Component Based Depreciation (Slide18) Rule4: Commencement & Cessation of Depreciation (Slide18)
  • 16. Nikhil 16 Rule1: Methods of Depreciation Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Methods of Depreciation Unit of ProductionWritten Down ValueStraight Line Method Amount of Depreciation will be same over the useful life of asset. Amount of Depreciation will be decreasing over the useful life of asset. Depreciation will be charged on the units of production Notes: a) Selection of method should be based on true & fair presentation of Financial statements. b) The method of Depreciation should be reviewed at the end of each year. c) The method of Depreciation if requires change, then it will be considered as change in estimates. There will be no adjustments in the Financial Statements of previous years.
  • 17. Nikhil 17 Rule2: Change in Estimates & Salvage Value Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Example: Cost of Asset- Rs.1,00,000 Salvage value of Asset- Rs.10,000 Estimated Life of Asset- 10years (SLM) After 3 years it is estimated that remaining useful life of asset is 5 years an revised salvage value is Rs.6,000. Calculate revise amount of Depreciation. Solution: Statement showing Revised Depreciation Particulars Rs. Original Cost 1,00,000 (-) Salvage Value (10,000) Depreciable Amount 90,000 (-) Depreciation for 3 years (90,000/10*3) (27,000) Remaining Amount 63,000 (+) Loss due to decline in Salvage Value (10,000(-)6,000) 4,000 Total: (A) 67,000 Revised life: (B) 5 years Revised Depreciation: (A/B) 13,400
  • 18. Nikhil 18 Rule3 & Rule4 Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Rule3: Component Based Depreciation As per new provisions, component based depreciation is also allowed. But value of each component should be significant to total cost for separate depreciation. Note: Components can be grouped if their useful life is same. Rule4: Commencement & Cessation Depreciation Commencement Cessation It will start from the date from which it becomes ready for use It will cease from the date at which asset is retired from use or sold whichever is earlier
  • 19. Nikhil 19 Change in Estimated De-Commissioning Cost Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE What is Decommissioning Cost: Decommissioning cost (also known as asset retirement obligation) is the cost incurred by companies in reversing the modifications made to landscape when a fixed asset is used up. An oil well offers a good example of asset that carries significant decommissioning cost. Change in Estimated Decommissioning Cost If change in Decommissioning Cost takes place then such change will be added or deducted from the cost of Asset. It will also be considered as change in estimate.
  • 20. Nikhil 20 Retirement of Assets Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE Retirement of Assets Accounting Standard-10 explains, retired assets should be held at: Carrying Amount Net Realizable ValueOR Whichever is “LOWER” Note: If Net Realizable value becomes lower than carrying amount then loss will be written off to Statement of Profit & Loss.
  • 21. Nikhil 21 De-Recognition of PPE Applicability & Nature Meaning of Tangible Assets Assets out of Scope Initial Recognition Subsequent Recognition Measurement of PPE Depreciation Change in Estimated De- commissioning cost Retirement of Assets De-Recognition of PPE De-Recognition of PPE Loss on SaleProfit on Sale If any asset is de-recognized then: OR Transferred to Statement of Profit & Loss Note: For De-Recognition of revalued Assets refer Measurement of PPE Rules