Contains slides with examples on Revised AS 10 Propertly Plant and Equipment and AS 13 Accounting for Investments

1. Accounting Standards
Particulars Details
Name Anbuselvan A S
Registration Number SRO 0416964
Intern S.R.Batliboi & Associates LLP
Mobile Number 9362499777

2. What’s Inside
 Introduction
 Recent changes in Accounting Standards
 AS 10 Property , Plant and Equipment
 AS 4 Contingencies and Event Occurring After Balance
sheet Date
 AS 13 Accounting For Investments
 AS 29 Provisions, Contingent Liabilities and Contingent
Assets
 Conclusion

3. Accounting Standards
Introduction :
What is Accounting Standards ?
 Accounting standards are authoritative standards for financial reporting
and are the primary source of generally accepted accounting principles
(GAAP). Accounting standards specify how transactions and other
events are to be recognized, measured, presented and disclosed in
financial statements.
Who Formulates Accounting Standards ?
 Accounting Standards Board was established by Institute of Chartered
Accountants of India (ICAI) for formulation of accounting Standards. As
on date, there are 32 Accounting Standards which have been issued by
ICAI (of which AS 6 and AS 8 have been withdrawn). In general these
Accounting Standards apply to enterprises engaged in commercial,
industrial or business activities, irrespective of whether they are profit
oriented or not. However the date and extent of applicability of
individual accounting standard is specified by further classification of
these enterprises into three categories-Level I, Level II and Level III
enterprises.

4. The Companies (Accounting Standards)
Amendment Rules, 2016
On 30 March 2016, the Ministry of Corporate Affairs (MCA) notified the Companies
(Accounting Standards) Amendment Rules, 2016, for amending the Companies
(Accounting Standards) Rules, 2006 (Indian GAAP). The amendment rules have
replaced AS 10 Accounting for Fixed Assets and AS 6 Depreciation Accounting, with a
new AS 10 Property, Plant and Equipment. In addition, the Amendment Rules contain
changes in the following Indian GAAP standards:
► AS 2 Valuation of Inventories
► AS 4 Contingencies and Event Occurring After Balance Sheet Date
► AS 13 Accounting for Investments
► AS 14 Accounting for Amalgamations
► AS 21 Consolidated Financial Statements
► AS 29 Provisions, Contingent Liabilities and Contingent Assets

5. The Companies (Accounting Standards)
Amendment Rules, 2016
From When the amendments are applicable ?
 These amendments are applicable from the date of their publication in
the Official Gazette, i.e., 30 March 2016. On this basis, the amended
standards may apply for the financial year/ period ended 31 March
2016. However, MCA has received several representations for deferring
the applicability date.
 MCA has given clarification through General circular 04/2016 dated April
27, 2016 that amended Accounting Standards should be used for
preparation of accounts for accounting periods commencing on or after
the date of notification i.e. from FY 16-17.

6. Accounting Standards
AS 10 Property, Plant and Equipment
Major Changes :
 Component Accounting
 Treatment of Major Repair and Overhaul Expenses
 Capitalization of Enabling Assets
 Review of Useful Life
 Treatment of Spare parts, Stand by and Servicing Equipment
 Treatment of Change in Depreciation Method

7. AS 10 Property, Plant and Equipment
Component Accounting
Pre Revised AS 10 :
► Pre-revised AS 10 doesn’t specify Component accounting where as
Schedule II to the Companies Act,2013 mandates the Component
accounting
Revised AS 10 :
► Revised AS 10 specifies that Component accounting should be
followed by the Companies. Thus, Revised AS 10 is aligned with
Schedule II to the Companies Act,2013

8. Major Repair and Overhaul expenditure
Scenario :
Ford Motors Private Ltd., is a company situated in Chennai. It owns a Assembly
machine worth Rs.4 crores which is majorly consists of 3 motors which cost Rs. 50
lakhs each.
During the Chennai floods one of the motors in the machinery got repaired which
was replaced with the new motor for Rs. 60 Lakhs and the old motor was
scrapped.
What should be the accounting treatment followed by the company for the
above scenario ?
AS 10 Property, Plant and Equipment

9. AS 10 Property, Plant and Equipment
Major Repair and Overhaul expenditure
Pre Revised AS 10 :
► In most cases, these are charged off to the statement of profit and
loss as incurred.
Revised AS 10 :
► Component accounting applies.
► Hence, major repairs and overhaul expenditure are capitalized as
replacement costs, if they satisfy the recognition criteria. The carrying
amount of those parts that are replaced is derecognised. This occurs
regardless of whether the replaced part had been depreciated
separately

10. Major Repair and Overhaul expenditure
Scenario :
Ford Motors Private Ltd., is a company situated in Chennai. It owns a Assembly
machine worth Rs.4 crores which is majorly consists of 3 motors which cost Rs. 50
lakhs each.
During the Chennai floods one of the motors in the machinery got repaired which
was replaced with the new motor for Rs. 60 Lakhs and the old motor was
scrapped.
What should be the accounting treatment followed by the company for the
above scenario ?
AS 10 Property, Plant and Equipment

11. Capitalization of enabling assets
Scenario :
Vizag Steel Plant decides to construct a new unit in Andhra near Bheemili,
Since the plant location will be in a remote place which does not have any
transport facility, the company decides to construct a road for 2 Kms from
the nearest National highway to the Plant on the government land which is
not owned by the company and over which it does not have exclusive
control as the road can be used by general public.
Company will incur Rs.5 crores for constructing the Road. Can the company
capitalise the same as Fixed Asset ?
Vizag Steel Plant
AS 10 Property, Plant and Equipment

12. AS 10 Property, Plant and Equipment
Capitalization of enabling assets
In the pre-revised AS 10 scenario, the Expert Advisory Committee (EAC) of the ICAI has dealt with
accounting for enabling assets in certain opinions, e.g., opinion on the subject “Treatment of capital
expenditure on assets not owned by the company.” published in the January 2011 edition of the ICAI
Journal. These opinions state that a company cannot capitalize expenditure incurred on enabling
assets, since these are available for public use and the company does not control them. Consequently,
the company needs to charge costs incurred on enabling assets to the statement of profit and loss
immediately. This was expected to have a significant impact on the financial statements of many
companies in the construction phase.
The revised AS 10 has settled this issue in a conclusive manner. The revised AS 10 introduces the
concept of a “unit of measure” to identify an item of a PPE that is eligible for capitalization. The
standard does not adopt a prescriptive approach in defining a “unit of measure,” but a company is
required to exercise its judgment based on its facts and circumstances. Hence, if a company can
demonstrate that the project under construction and enabling assets are one “unit of measure,” it can
capitalize the expense incurred on the enabling assets as the cost of the project.

13. Capitalization of enabling assets
Scenario :
Vizag Steel Plant decides to construct a new unit in Andhra near Bheemili,
Since the plant location will be in a remote place which does not have any
transport facility, the company decides to construct a road for 2 Kms from
the nearest National highway to the Plant on the government land which is
not owned by the company and over which it does not have exclusive
control as the road can be used by general public.
Company will incur Rs.5 crores for constructing the Road. Can the company
capitalise the same as Fixed Asset ?
Vizag Steel Plant
AS 10 Property, Plant and Equipment

14. AS 10 Property, Plant and Equipment
Revaluation of Property, Plant and Equipment
Pre Revised AS 10 :
► Recognizes revaluation of fixed assets. However, the revaluation approach adopted
therein is ad hoc in nature.
► does not require the adoption of fair value basis as its accounting policy or revaluation of
assets with regularity.
► provides an option for selection of assets within a class for revaluation on systematic basis.
Revised AS 10 :
► Requires a company to choose either the cost model or the revaluation model as its
accounting policy and to apply that policy to an entire class of PPE.
► It requires that under the revaluation model, revaluation should be made with reference
to the fair value of items of PPE.
► It also requires that revaluations should be made with sufficient regularity to ensure that
the carrying amount does not differ materially from the amount determined using fair
value at the balance sheet date.

15. AS 10 Property, Plant and Equipment
Revaluation of PPE
Companies, which have selectively revalued fixed assets or intend to revalue the fixed assets, will
have to determine whether they want to continue with the revaluation model or not. This decision is
crucial for an enterprise if it wants to continue with the revaluation model.
It will have to:
► Adopt the revaluation model for the entire class of assets that cannot be restricted to some
selective location
► Update such revaluation on regular basis
► Take a depreciation charge in the statement of profit and loss based on revalued amounts

16. AS 10 Property, Plant and Equipment
Spare parts, servicing and stand-by equipment
Pre Revised AS 10
• Pre-revised AS 10 , Machinery spares are usually treated as inventory and charged to profit or loss
on consumption.
• However, spare parts that can only be used in connection with a particular item of fixed asset, and
whose use is expected to be irregular, are capitalized. Such spare parts are depreciated over a
period, not exceeding the remaining useful life of the principal asset.
Revised AS 10
• According to revised AS 10, all spare parts, stand-by and servicing equipment qualify as fixed
assets if they meet the definition of PPE, i.e., if the company intends to use these during more than
a period of 12 months.
• Unlike the pre revised AS 10, the revised AS 10 does not separately deal with depreciation of spare
parts capitalized.
• The transitional provisions state that if a spare part, which was previously recognized as inventory,
is required to be capitalized as a PPE; it is capitalized at its carrying amount and depreciated
prospectively over its remaining useful life.

17. AS 10 Property, Plant and Equipment
Review of Useful Life
Pre Revised AS 10 :
► Does not mandate an annual review of useful lives, depreciation method and residual
values, but recommends periodic review of useful lives.
Revised AS 10 :
► Requires estimates of useful lives, depreciation method and residual values to be
reviewed at least at the end of each financial year.
Change in Depreciation method
Pre Revised AS 10 :
► Considered as change in Accounting Policy, change should be applied with
retrospective effect
Revised AS 10 :
► Considered as change in Accounting Estimate, change should be applied with
prospective effect

18. AS 4 Contingencies and Event Occurring After
Balance Sheet Date
Overview of key amendments
Pre-revised AS 4 Revised AS 4
Dividend in respect of the period covered by
financial statements, which are proposed or
declared by the enterprise after the balance
sheet date but before approval of the financial
statements, should be adjusted.
If dividends are declared after the balance sheet
date but before the financial statements are
approved for issue, the dividends are not
recognized as liability at the balance sheet date
because no obligation exists at that time unless a
statute requires otherwise. Such dividends are
disclosed in notes.
Key impact
Schedule III to the Companies Act, 2013, does not require dividend proposed/ declared after the balance sheet date to
be treated as an adjusting event. However, due to the requirements of pre-revised AS 4, companies were required to
create a liability for dividend proposed/ declared after the balance sheet date if dividend related to periods covered by
financial statements. Going forward, companies will not be required to create provision for dividend proposed/ declared
after the balance sheet date. Rather, they will need to disclose the same in notes to the financial statements.
The revised AS 4 better reflects the fact that the company does not have dividend liability at the balance sheet date.
Moreover, it is aligned to accounting required under Ind AS/ IFRS.

19. Scenario :
Tech Mahindra Ltd., buys a building in Gajuwaka for Rs.80 Lakhs to use as guest house. Later
on Company decides not to use that building as a Guest house and decides to held that
building as an investment property.
Tech Mahindra Ltd., did not provide depreciation on the building and carried the building at
the cost.
Whether the Accounting treatment followed by the company is appropriate ?
AS 13 Accounting for investments
Accounting Treatment of Investment Properties

20. AS 13 Accounting for investments
Overview of key amendments
Pre-revised AS 13 Revised AS 13
An enterprise holding investment properties
should account for them as long-term
investments.
An enterprise holding investment properties
should account for them in accordance with the
cost model as prescribed in AS 10 Property, Plant
and Equipment.
Key impact
Pre-revised AS 13 did not contain any specific requirement for charging depreciation on investment properties.
However, a Circular of the Department of Company Affairs (DCA) required that depreciation on investment properties
should be provided. Based on this and the fact that building element in investment property has a limited useful life,
most companies depreciate the building element of investment property.
The amendment in AS 13 makes it clear that depreciation, component accounting and other related requirements of
revised AS 10 will apply to investment properties. Since AS 13 requires investment properties should be accounted for
in accordance with the cost model, it is also clear that investment properties cannot be revalued/ fair valued.

21. Scenario :
Tech Mahindra Ltd., buys a building in Gajuwaka for Rs.80 Lakhs to use as guest house. Later
on Company decides not to use that building as a Guest house and decides to held that
building as an investment property.
Tech Mahindra Ltd., did not provide depreciation on the building and carried the building at
the cost.
Whether the Accounting treatment followed by the company is appropriate ?
AS 13 Accounting for investments
Accounting Treatment of Investment Properties

22. Scenario :
Reliance Industries Ltd has obtained approval from Government of India for extracting Oil
from KG (Krishna Godavari) basin. As per the agreement with GOI, RIL has to restore the sea
bed after the completion of 20 years. The Company has estimated the cost to restore the sea
bed would be Rs. 120 Crore at the end of 20th year.
What is the accounting treatment to be followed for the site restoration cost. Should the
company Discount the Restoration Costs ?
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Accounting Treatment of Provisions for Decommissioning and Restoration

23. AS 29 Provisions, Contingent Liabilities and Contingent Assets
Provisions for Decommissioning and Restoration
Pre Revised AS 29 :
► The amount of provision should not be discounted to its present value.
Revised AS 29 :
► The amount of provision should not be discounted to its present value, except in case of
decommissioning, restoration and similar liabilities that are recognized as cost of PPE in
accordance with AS 10.
► The transitional provisions state that all the existing provisions for decommissioning,
restoration and similar liabilities should be discounted prospectively, with the
corresponding effect to the related items of PPE.

24. Scenario :
Reliance Industries Ltd has obtained approval from Government of India for extracting Oil
from KG (Krishna Godavari) basin. As per the agreement with GOI, RIL has to restore the sea
bed after the completion of 20 years. The Company has estimated the cost to restore the sea
bed would be Rs. 120 Crore at the end of 20th year.
What is the accounting treatment to be followed for the site restoration cost. Should the
company Discount the Restoration Costs ?
AS 29 Provisions, Contingent Liabilities and Contingent Assets
Accounting Treatment of Provisions for Decommissioning and Restoration

25. AS 29 Provisions, Contingent Liabilities and
Contingent Assets
Key impact
Since AS 29 previously prohibited discounting, some companies may have capitalized undiscounted amount of
decommissioning, restoration and similar liabilities to the cost PPE. Considering this, transitional provisions require that
all the existing provisions for decommissioning, restoration and similar liabilities should be discounted prospectively, with
the corresponding effect to the related items of PPE.
For Example ,
Consider that 5 years ago, the company has capitalized PPE along-with related decommission obligation of INR100
million at an undiscounted amount. The obligation is payable after 25 years from the date of initial incurrence, i.e., 20
years from the date of adoption of revised AS 29. It is assumed that there are no changes in the decommissioning
obligation. On the date of adoption of revised AS 29, the company will discount INR100 million for the remaining period
of 20 years. Assume that this results in present value of decommissioning obligation at INR55 million. The company will
reduce the corresponding INR45 million (100-55) from the cost of PPE. Going forward, interest will be recognized on
decommissioning obligation of INR55 million, such that after 20 years, the amount is accreted to INR100 million.
Effectively, transitional provisions require entities to ignore impact of past discounting on finance cost.

26. Concluding remarks
The overall objective of these amendments is to improve Indian GAAP accounting, particularly, for companies that will
not adopt Ind AS. However, these amendments may impact even Ind AS companies due to transitional effects. To
illustrate, consider that a company, which is covered in phase 2 of Ind AS adoption, has revalued its land under Indian
GAAP in the past years. The original cost of land is INR 80 and it was revalued to INR 100 under pre-revised AS 10. On
the date of application of revised AS 10, land is appearing in Indian GAAP financial statements at INR 100 and INR 20
is appearing as revaluation reserve. To comply with revised AS 10 transitional provisions, the company has the following
two options:
(a) The company adopts revaluation model for its concerned class of PPE, viz., land. This will require company to
revalue land on a regular basis. This results in current date fair valuation of land at INR 120 and total revaluation
reserve of INR 40.
(b) The company moves back to the cost by adjusting the amount outstanding in revaluation reserve against the
carrying amount of land. This results in the land carrying amount of INR 80. There will be nil balance in the revaluation
reserve.
The above decision will impact not only Indian GAAP balance sheet, but it is also likely to impact Ind AS carrying
amount on first-time adoption, particularly, if the company uses Ind AS 101 exemption whereby it can continue with the
carrying value for all of its PPE as recognised in its previous GAAP financial statements as deemed cost at the
transition date. If the company uses first option under revised AS 10, its deemed cost of land at the transition date will
be INR 120. If the company uses second option under revised AS 10, its deemed cost of land at the transition date will
be INR 80. It is imperative that companies evaluate these implications properly and exercise due care while applying
amendments to Indian GAAP Standards.

27. A Presentation by Anbuselvan A S