PROP 9.18 Comparison of AS- AS-10 ‘Property Plant and an option t0 re from the AS-12 giv the government grant against s c asset cost of th Revaluationiner luation model is directly in equity as Re’ Surplus. d tax is not created for ‘urplusasitis treated rence as per eunder rev: scognize valuation Deferres revaluation surp a permanent diffe ERTY, PLANT AND EQUIPMENT 10 with Ind AS-16 ;duce ed revaluation surplus. ee ea Deferred tax is creat ° ed for temporary _, 14g Ind AS-16 ‘Property Plant ang ment Grant rec cl is not duces cd 7 sel as per Ind Assam the Revaluation inerease under revahmage~| ation | model is recognized comprehensive income and mulated in equity under the Head ol difference arising due to revaluan if PPE between its carrying emer a ie tax base as per Ind AS-12, ws AS-22. : Ttems of PPE retired from active use and held for disposal should be stated at the lower of their carrying amount and net realizable value. Any write-down in this regard should be reco- gnized immediately in the statement of profit and loss. There is no provision for the PPE held for disposal or retired from active use. Such situations are to be dealt by the de. recognition provision. Items of PPE retired from active use and held for disposal should be stated at the lower of their carrying amount and net realizable value. Any write-down in this regard should be reco- gnized immediately in the state- ment of profit and loss Retirement of PPE: No Express Provision costs: Initial delivery and handling costs Cost of site preparation ILLUSTRATIONS PA installing a new plant at its production facility. It has incurred these Ce ‘ost of the plant (cost Per supplier's invoice plus taxes) as used for advice on the acquisition of the plant [ interest charges paid to supplier of plant for deferred credit (Amt. in Rs.) 25,00,000 2,00,000 6,00,000 7,00,000 2,00,000 baw)Estimated dismantling costs to be incurred after 7 years (PV) 3,00,000 Operating losses before commercial production 4,00,000 Advise Z Ltd. on the costs that can be capitalized in accordance with AS-10, Solution: According to AS-16, these costs can be capitalized: (Amt. in Rs.) Cost of the plant 25,00,000 Jnitial delivery and handling costs 2,00,000 Cost of site preparation 6,00,000 Consultants’ fees 7,00,000 Estimated dismantling costs to be incurred after 7 years 3,00,000 43,00,000 Interest charges paid on “deferred credit terms’ to the supplier of the plant (nota qualifying asset) of Rs. 2,00,000 and operating losses before commercial produc- tion amounting to Rs. 4,00,000 are not regarded as directly attributable costs and thus cannot be capitalized. They should be written off to the income statement in the period they are incurred. The current Standard applies the two basic recognition criteria referred to above toall expenditures (and dispenses with the increased utility or increased useful life criteria). If the two basic criteria are satisfied, then the cost should be recognized asan asset. If the cost of the replaced asset was not separately identifiable, then the cost of the replacement can be used as an Indication of the cost of the replaced , which should be removed from the asset record. Q2:A shipping company is required by law to bring allits ships into dry dock every 5 years for a major inspection and overhaul. Overhaul expenditure might at first sight seem to be repair to the ships but is actually a cost incurred in getting the ship back into a seaworthy condition. As such the costs must be capitalised. A ship that cost Rs. 20 crores with 20 year life must have a major overhaul every 5 years, The estimated cost of the first overhaul is Rs. 5 crores. Harpe! The depreciation charge for the first 5 years of the asset life will be as IS: & Overhaul (Rs. in Crores) | Capital (Rs. in Crores) a 5.00 15.00 Ye ears 5.00 20.00 Annual depreciation 1.00 0.75 The ay ati v a anual depreciation for 5 years will be Rs. 1.75 crores and the carrying value p at the end of year 5 will be Rs, 11.25 crores. Theactual . . illnow eae Costs incurred at the end year 5 are Rs. 6 crores. This amount res, Pltalised into the costs of the ship, to givea carrying value of Rs. 17.25 cro)0 will be as follows: i The depreciation charge for years 6 to | Overhaul (Rs. in Crores) | Capital me in Crores) Cost 6.00 we Years 5.00 ss 75 | Depreciation per year 1.20 will now be Rs. 1.95 crores. 11 to 15and years 16 t0 20. By thee, Annual depreciation for years 6 to 10 will have been depreciated plug the | This process will then be continued oe of the year 20 the capital cost of Rs. 20 crore wad 15. actual overhaul costs incurred at ye : : es. On Ist October 2011, X Ltd began the construction of a new factory, ce relating to the factory are as follows Rs. (in thousands) Purchase of the land - 10,000 Cost of dismantling existing structure on the site 500 Purchase of materials to construct the factory 6,000 Employment costs 1,800 Production overheads directly related to the construction 1200 Allocated general administrative overheads 600 Architects and consultants fees directly related to the construction 400 Costs of relocating staff who are to work at the new factory 300 Costs relating to the formal opening of the factory 200 Interest on loan to partly finance factory construction is 1200 Plant and machinery purchased for use in the factory 6,000 ) The factory took eight months to Contract and was brought into use on 30th Gite a ‘e employment costs are for the nine months to 30th June 2012. production overheads were incurred in the eight months ended 31st May 2012. They included an aby rectify damage causes He aut gost Rs. 200,000 caused by the need toZ 4%. NDA Ltd purchased a machine costing Rs. 125,000 for its manufacturing operations and paid shipping costs of Rs. 20,000. NDA spent an additional amount of Rs. 10,000 for testing and preparing the machine for use. What amount should NDA record as the cost of the machine? Solution: As per AS-10, the cost of PPE should comprise its purchase price andany attributable cost of bringing the asset toits working condition for its intended use. In this case the cost of machinery includes all expenditures incurred in acquiring the asset and preparing it for use. Cost includes the purchase price, freight and handling charges, insurance cost on the machine while in transit, cost of special foundations, and costs of assembling, installation and testing. Therefore the cost to be recorded is Rs.155,000 (Rs. 125,000 + Rs. 20,000 + Rs. 10,000). “On December 1, 2012, Induga Co. purchased Rs. 400,000 worth of land for a 1 factory site. Induga ‘yazed an old building on the property and sold the materials demolition. Induga incurred additional costs and realized it salvaged from the salvage proceeds during December 2012 as follows: Demolition of old building Rs. 50,000 Legal fees for purchase contract and recording ownership Rs. 10,000 Title guarantee insurance Rs. 12,000 Proceeds from sale of salvaged materials Rs. 8,000