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Why a revised standard is

required?
Even though Ind AS implementation is in track, MCA has
clarified that Ind AS needs to be followed by Large
enterprises whereas Small and Medium sized enterprises will
continue to adopt the Existing AS with some modifications.

As a first step towards the modification of existing AS, on

30th March, 2016, MCA notified Companies (Accounting
Standards) Amendment Rules, 2016 which revised AS 10
with a new standard which is similar to IAS/IFRS.

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What are the changes in
Amendment Rules, 2016?

 Revision of AS 2, AS4, AS 13, AS14, AS21 and AS29.

 Removal of AS6 on Depreciation Accounting.

 Introduction of a completely new AS 10 (Revised)

‘Property, plant and equipment’ in place of AS 10-

‘Accounting for fixed assets’.

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Objective of the standard
 The objective of this Standard is to prescribe the
accounting treatment for property, plant and equipment.
 Principal issues in accounting for property, plant and
equipment are;

Recognition of the asset.

The determination of their carrying amounts.

The charges of depreciation.

Impairment losses to be recognized in relation to the asset.

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Scope of standard

This Standard should be applied in accounting for

property, plant and equipment except when
another Accounting Standard requires or permits
a different accounting treatment.

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Scope of standard
This standard does not apply to:

Biological assets related to agricultural activity

other than bearer plants.

Wasting assets including mineral rights,

expenditure on the exploration for and extraction of
minerals, oils, natural gas and similar non-
regenerative resources.

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Definitions
Property, Plant and Equipment
• Property, plant and equipment are tangible items that:
• are held for use in the production or supply of goods or services, for
rental to others, or for administrative purposes; and
• are expected to be used during more than a period of twelve months.

Bearer Plants
• Bearer plant is a plant that
• is used in the production or supply of agricultural produce;
• is expected to bear produce for more than a period of twelve months;
and
• has a remote likelihood of being sold as agricultural produce, except
for incidental scrap sales.
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Recognition Criteria
The cost of an item of property, plant and equipment
should be recognised as an asset if, and only if:

a) it is probable that future economic benefits associated

with the item will flow to the enterprise and

b) Cost of the item can be measured reliably.

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 Recognition of Spare parts and stand-by
equipment

If the recognition • Accounted as per AS

criteria is met 10 (Revised)

If recognition • Accounted as per AS 2

criteria is not ‘Valuation for
satisfied Inventories’

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Measurement at
Recognition
An item of property, plant and equipment that
qualifies for recognition as an asset should be
measured at its cost.

The cost of PPE includes;

1. Initial Cost: cost incurred initially to acquire or
construct the PPE
2. Subsequent Cost: costs incurred subsequently to
add to, replace part of, or service it.

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Elements of Cost
The cost of PPE comprises;

 Its purchase price, including import duties and non –

refundable purchase taxes,, after deducting trade
discounts and rebates.

 Any costs directly attributable to bringing the asset to

the location and condition

 The initial estimate of decommissioning, restoration

and similar liabilities.

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Examples of directly attributable cost

 Costs of employee benefits arising directly from the

construction or acquisition of the PPE
 Costs of site preparation
 Initial delivery and handling costs
 Installation and assembly costs
 Costs of testing whether the asset is functioning properly,
after deducting the net proceeds from selling any items
produced and
 professional fees.

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Costs not to be capitalized

 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) and
 administration and other general overhead costs

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Self Constructed Assets
 Cost of Self-constructed Asset: Same principles as for
an acquired asset.
 The cost of the asset is usually the same as the cost of
constructing an asset for sale.
 Any internal profits are eliminated in arriving at such
costs.
 The cost of abnormal amounts of wasted material,
labour, or other resources incurred in self-constructing
an asset is not included in the cost
 Any borrowing cost which can be capitalized can be
included in the cost of PPE.

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Measurement after
Recognition
 An enterprise should choose either the cost model or the
revaluation model as its accounting policy and should apply
that policy to an entire class of property, plant and equipment.
 Cost Model: After recognition as an asset, an item of PPE
should be carried at its cost less any accumulated depreciation
and any accumulated impairment losses.
 Revaluation Model: After recognition as an asset, an item of
PPE whose fair value can be measured reliably should be
carried at a revalued amount, being its fair value at the date of
the revaluation less any subsequent accumulated depreciation
and subsequent accumulated impairment losses.

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Revaluation Model
 If an Asset’s carrying amount is increased as a result of
revaluation;
 the increase should be recognised and accumulated in equity under
the heading of revaluation surplus.
 the increase should be recognised in the profit and loss to the extent
that it reverses a revaluation decrease of the same asset previously
recognised in the profit and loss account.
 If an Asset’s carrying amount is decreased as a result of
revaluation;
 the decrease should be recognised in the profit and loss.
 the decrease should be debited directly to owners’ interests under
the heading of revaluation surplus to the extent of any credit
balance existing in the revaluation surplus in respect of that asset.

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DEPRECIATION
 Depreciation is the systematic allocation of the
depreciable amount of an asset over its useful life.
Depreciable amount is the cost of an asset, or other
amount substituted for cost, less its residual value.

 Component cost approach is to be followed. i.e.,

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.

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Beginning & Cessation of
Depreciation
Beginning
• Depreciation of an
asset begins when it
is available for use,
i.e., when it is in the
location and
condition necessary
for it to be capable of
operating in the
manner intended by
management.
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Cessation
• Depreciation of an
asset ceases 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.
Factors to be considered while
determining useful life

i. expected usage of the asset

ii. expected physical wear and tear

iii. technical or commercial obsolescence arising from changes or

improvements in production

iv. legal or similar limits on the use of the asset, such as the expiry
dates of related leases.

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Methods of Depreciation

 The depreciation method used should reflect the

pattern in which the future economic benefits of the
asset are expected to be consumed by the enterprise.

 The depreciation methods given in AS itself are;

a) Straight-line method

b) The diminishing balance method

c) The units of production method

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Review of Residual Value, Useful life & Method of
Depreciation
 AS 10 (Revised) required that the residual value, useful life and
method of depreciation used should be reviewed at least at each
financial year.

 In case of method of depreciation, if there has been a significant

change in the expected pattern of consumption of the future
economic benefits embodied in the asset, the method should be
changed to reflect the changed pattern. Such a change should be
accounted for as a change in an accounting estimate in
accordance with AS 5.

 In case of residual value and useful life, , if expectations differ from

previous estimates, the change(s) should be accounted for as a
change in an accounting estimate in accordance with AS 5.
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IMPAIRMENT
An impairment loss is the amount by which the carrying
amount of an asset exceeds its recoverable amount.

To determine whether an item of property, plant and

equipment is impaired, an enterprise applies AS 28,
Impairment of Assets.

Compensation from third parties for items of property, plant

and equipment that were impaired, lost or given up should be
included in the statement of profit and loss when the
compensation becomes receivable.
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Retirements

Items of property, plant and equipment retired from

active use and held for disposal should be stated at the
lower of their carrying amount and net realisable
value. Any write-down in this regard should be
recognised immediately in the statement of profit and
loss.

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DERECOGNITION
 The carrying amount of an item of property, plant and
equipment should be derecognised
• on disposal; or
• when no future economic benefits are expected from its
use or disposal.
 The gain or loss arising from the derecognition of an item of
property, plant and equipment should be included in the
statement of profit and loss when the item is derecognised.
 The gain or loss arising from the derecognition of an item of
property, plant and equipment should be determined as the
difference between the net disposal proceeds, if any, and the
carrying amount of the item.

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Important Disclosure Requirements

 The financial statements should disclose, for each

class of property, plant and equipment:
 The measurement bases (i.e., cost model or revaluation

model) used for determining the gross carrying amount.

 The depreciation methods used.

 The useful lives or the depreciation rates used.

 The gross carrying amount and the accumulated

depreciation (aggregated with accumulated impairment

losses) at the beginning and end of the period.

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Continues..
 A reconciliation of the carrying amount at the
beginning and end of the period showing:
i. additions;
ii. assets retired from active use and held for disposal;
iii. acquisitions through business combinations ;
iv. increases or decreases resulting from revaluations and
from impairment losses recognised or reversed directly
in revaluation surplus in accordance with AS 28;
v. impairment losses recognised in the statement of profit
and loss in accordance with AS 28;
vi. impairment losses reversed in the statement of profit
and loss in accordance with AS 28;
vii. depreciation;
viii. the net exchange differences arising on the translation
of the financial statements of a non-integral foreign
operation in accordance with AS 11, The Effects of
Changes in Foreign Exchange Rates; and
ix. other changes.

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Continues..
 The financial statements should also disclose:
 the existence and amounts of restrictions on title, and property,
plant and equipment pledged as security for liabilities;
 the amount of expenditure recognised in the carrying amount
of an item of property, plant and equipment in the course of its
construction;
 the amount of contractual commitments for the acquisition of
property, plant and equipment;
 if it is not disclosed separately on the face of the statement of
profit and loss, the amount of compensation 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
 the amount of assets retired from active use and held for
disposal.

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Continues..
 If items of property, plant and equipment are stated at revalued
amounts, the following should be disclosed:
 the effective date of the revaluation;

 whether an independent valuer was involved;

 the methods and significant assumptions applied in estimating fair

values of the items;

 the extent to which fair values of the items were determined directly

by reference to observable prices in an active market or recent

market transactions on arm’s length terms or were estimated using
other valuation techniques; and

 the revaluation surplus, indicating the change for the period and any

restrictions on the distribution of the balance to shareholders.

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Other disclosure requirements
 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) the estimated costs of dismantling, removing or restoring items
of property, plant and equipment;
c) useful lives; and
d) depreciation methods.
 Disclosure regarding;
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.

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Comparison of AS6 & AS10 with AS10(Revised)
AS10 (Revised) AS6 & AS10

 AS10 (Revised) does not exclude  AS10 had specifically excluded

real estate developer from its
scope and clearly makes the
standard applicable to bearer
plants (e.g. Rubber trees, grape
wine).
 In addition to definition of PPE,
it specifically gives a recognition
criteria for recognizing an item of
PPE.
 AS10 (Revised) requires an entity
to choose either the cost method
or the revaluation method as its
accounting policy and to apply
that policy to an entire class of
PPE.
accounting for real estate
developers from the scope of the
standard whereas new standard
does not exclude such developers
from its scope.
 AS 10 only gives the definition of
fixed asset and not gives any
recognition criteria.
 AS 10 does not give any
measurement base such as cost or
revaluation model or choose any
one of such method as accounting
policy.

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 AS10 (Revised)
 AS10 (Revised) does not
specifically deal with jointly owned
assets.
 AS 10(Revised) requires that the
residual value and useful life of an
asset be reviewed at the end of
each financial year.
 AS10 (Revised) requires that the
depreciation method applied
should be reviewed at least at the
end of each financial year and
pattern and the change should be
treated as a change in accounting
estimate.
 Items of PPE retired from active
use and held for disposal should be
stated at the lower of their
carrying amount and net realisable
value.
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AS 6 & AS10
 Existing AS specifically deals with
fixed assets owned jointly with
others.
 Under AS 6, such a review is not
obligatory since it simply provides
that useful asset of an asset may be
reviewed periodically.
 AS6 recognises change in
depreciation method as a change in
accounting policy. Method can be
changed only if there is a change in
AS or statute or for better
preparation and presentation of
financial statements.
 AS 10 does not contain any such
provision.
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