Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification. Objective 1. The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about investment made by an enterprise in its property, plant and equipment and the changes in such investment.
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Financial statements disclose certain information relating to fixed assets. In many enterprises these assets are grouped into various categories, such as land, buildings, plant and machinery, vehicles, furniture and fittings, goodwill, patents, trade marks and designs.
This statement deals with accounting for such fixed assets except as described in paragraphs 2 to 5 below. This statement does not deal with the specialised aspects of accounting for fixed assets that arise under a comprehensive system reflecting the effects of changing prices but applies to financial statements prepared on historical cost basis.
Expenditure on individual items of fixed assets used to develop or maintain the activities covered in i to iv above, but separable from those activities, are to be accounted for in accordance with this Statement.
This statement does not deal with the treatment of government grants and subsidies, and assets under leasing rights. It makes only a brief reference to the capitalisation of borrowing costs and to assets acquired in an amalgamation or merger. These subjects require more extensive consideration than can be given within this Statement. Definitions 6. The following terms are used in this Statement with the meanings specified: 6.
When this amount is shown net of accumulated depreciation, it is termed as net book value. Explanation 7. Fixed assets often comprise a significant portion of the total assets of an enterprise, and therefore are important in the presentation of financial position.
Identification of Fixed Assets 8. Judgement is required in applying the criteria to specific circumstances or specific types of enterprises. It may be appropriate to aggregate individually insignificant items, and to apply the criteria to the aggregate value. An enterprise may decide to expense an item which could otherwise have been included as fixed asset, because the amount of the expenditure is not material 8. Machinery spares are usually charged to the profit and loss statement as and when consumed.
However, if such spares can be used only in connection with an item of fixed asset and their use is expected to be irregular, it may be appropriate to allocate the total cost on a systematic basis over a period not exceeding the useful life of the principal item.
For example, rather than treat an aircraft and its engines as one unit, it may be better to treat the engines as a separate unit if it is likely that their useful life is shorter than that of the aircraft as a whole. Components of Cost 9. The cost of a fixed asset may undergo changes subsequent to its acquisition or construction on account of exchange fluctuations, price adjustments, changes in duties or similar factors.
However, financing costs including interest on fixed assets purchased on a deferred credit basis or on monies borrowed for construction or acquisition of fixed assets are not capitalised to the extent that such costs relate to periods after such assets are ready to be put to use.
However, in some circumstances, such expenses as are specifically attributable to construction of a project or to the acquisition of a fixed asset or bringing it to its working condition, may be included as part of the cost of the construction project or as a part of the cost of the fixed asset.
However, the expenditure incurred after the plant has begun commercial production, i. However, the expenditure incurred during this period is also sometimes treated as deferred revenue expenditure to be amortised over a period not exceeding 3 to 5 years after the commencement of commercial production Self-constructed Fixed Assets Included in the gross book value are costs of construction that relate directly to the specific asset and costs that are attributable to the construction activity in general and can be allocated to the specific asset.
Any internal profits are eliminated in arriving at such costs. Non-monetary Consideration It may be appropriate to consider also the fair market value of the asset acquired if this is more clearly evident. An alternative accounting treatment that is sometimes used for an exchange of assets, particularly when the assets exchanged are similar, is to record the asset acquired at the net book value of the asset given up in each case an adjustment is made for any balancing receipt or payment of cash or other consideration.
Improvements and Repairs Only expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.
Any addition or extension, which has a separate identity and is capable of being used after the existing asset is disposed of, is accounted for separately. Amount Substituted for Historical Cost Such financial statements are to be distinguished from financial statements prepared on a basis intended to reflect comprehensively the effects of changing prices.
Other methods sometimes used are indexation and reference to current prices which when applied are cross checked periodically by appraisal method An upward revaluation does not provide a basis for crediting to the profit and loss statement for accumulated depreciation existing at the date of revaluation. In such cases, it is necessary to disclose the gross book value included on each basis. Accordingly, when revaluations do not cover all the assets of a given class, it is appropriate that the selection of assets to be revalued be made on a systematic basis.
For example, an enterprise may revalue a whole class of assets within a unit. A decrease in net book value arising on revaluation of fixed assets is charged to profit and loss statement except that, to the extent that such a decrease is considered to be related to a previous increase on revaluation that is included in revaluation reserve, it is sometimes charged against that earlier increase. It sometimes happens that an increase to be recorded is a reversal of a previous decrease arising on revaluation which has been charged to profit and loss statement in which case the increase is credited to profit and loss statement to the extent that it offsets the previously recorded decrease.
Retirements and Disposals Any expected loss is recognised immediately in the profit and loss statement The amount standing in revaluation reserve following the retirement or disposal of an asset which relates to that asset may be transferred to general reserve Valuation of Fixed Assets in Special Cases They are shown in the balance sheet with an appropriate narration to indicate that the enterprise does not have full ownership thereof. Alternatively, the pro rata cost of such jointly owned assets is grouped together with similar fully owned assets.
Details of such jointly owned assets are indicated separately in the fixed assets register Fixed Assets of Special Types Goodwill arises from business connections, trade name or reputation of an enterprise or from other intangible benefits enjoyed by an enterprise However, many enterprises do not write off goodwill and retain it as an asset.
Patents are normally written off over their legal term of validity or over their working life, whichever is shorter In such cases depreciation is calculated on the total cost of those assets, including the cost of the know-how capitalised. Know-how related to manufacturing processes is usually expensed in the year in which it is incurred. Disclosure The items determined in accordance with the definition in paragraph 6. The gross book value of a fixed asset should be either historical cost or a revaluation computed in accordance with this Standard.
The method of accounting for fixed assets included at historical cost is set out in paragraphs 20 to 26; the method of accounting of revalued assets is set out in paragraphs 27 to Financing costs relating to deferred credits or to borrowed funds attributable to construction or acquisition of fixed assets for the period up to the completion of construction or acquisition of fixed assets should also be included in the gross book value of the asset to which they relate.
However, the financing costs including interest on fixed assets purchased on a deferred credit basis or on monies borrowed for construction or acquisition of fixed assets should not be capitalised to the extent that such costs relate to periods after such assets are ready to be put to use.
When a fixed asset is acquired in exchange or in part exchange for another asset, the cost of the asset acquired should be recorded either at fair market value or at the net book value of the asset given up, adjusted for any balancing payment or receipt of cash or other consideration.
For these purposes fair market value may be determined by reference either to the asset given up or to the asset acquired, whichever is more clearly evident.
Fixed asset acquired in exchange for shares or other securities in the enterprise should be recorded at its fair market value, or the fair market value of the securities issued, whichever is more clearly evident. Subsequent expenditures related to an item of fixed asset should be added to its book value only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance. Material items retired from active use and held for disposal should be stated at the lower of their net book value and net realisable value and shown separately in the financial statements.
Fixed asset should be eliminated from the financial statements on disposal or when no further benefit is expected from its use and disposal. Losses arising from the retirement or gains or losses arising from disposal of fixed asset which is carried at cost should be recognised in the profit and loss statement When a fixed asset is revalued in financial statements, an entire class of assets should be revalued, or the selection of assets for revaluation should be made on a systematic basis.
This basis should be disclosed. The revaluation in financial statements of a class of assets should not result in the net book value of that class being greater than the recoverable amount of assets of that class. When a fixed asset is revalued upwards, any accumulated depreciation existing at the date of the revaluation should not be credited to the profit and loss statement A decrease in net book value arising on revaluation of fixed asset should be charged directly to the profit and loss statement except that to the extent that such a decrease is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilised, it may be charged directly to that account.
The provisions of paragraphs 23, 24 and 25 are also applicable to fixed assets included in financial statements at a revaluation. On disposal of a previously revalued item of fixed asset, the difference between net disposal proceeds and the net book value should be charged or credited to the profit and loss statement except that to the extent that such a loss is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilised, it may be charged directly to that account.
Fixed assets acquired on hire purchase terms should be recorded at their cash value, which, if not readily available, should be calculated by assuming an appropriate rate of interest. They should be shown in the balance sheet with an appropriate narration to indicate that the enterprise does not have full ownership thereof.
Alternatively, the pro rata cost of such jointly owned assets may be grouped together with similar fully owned assets with an appropriate disclosure thereof.
Where several fixed assets are purchased for a consolidated price, the consideration should be apportioned to the various assets on a fair basis as determined by competent valuers.
The direct costs incurred in developing the patents should be capitalised and written off over their legal term of validity or over their working life, whichever is shorter. Depreciation should be calculated on the total cost of those assets, including the cost of the know-how capitalised.
Where the amount paid for know-how is a composite sum in respect of both the manufacturing process as well as plans, drawings and designs for buildings, plant and machinery, etc. By RSPN.
AS-10, Accounting for Fixed Assets (As issued by ICAI)
S 6 Depreciation. Today we are providing the full details of Accounting Standard — 10 revised summary notes. In this article, you can get the definition of fixed asset, applicability, non-applicability, the cost of fixed asset includes, which things should be deducted from cost of fixed asset and accounting treatment of revaluation. Accounting Standard Fixed Assets AS 10 Fixed Asset : It is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. It is expected to be used for more than one accounting period. Non-Applicability : This statement does not deal with the specialized aspects of accounting for fixed assets that arise under a comprehensive system reflecting the effects of changing prices but applies to financial statements prepared on historical cost basis. This statement does not deal with accounting for the following items to which special considerations apply: i forests, plantations and similar regenerative natural resources; ii wasting assets including mineral rights, expenditure on the exploration for and extraction of minerals, oil, natural gas and similar non-regenerative resources; iii expenditure on real estate development; and iv livestock.
The relevant changes are incorporated in the same. Paid E-filing by Expert CAs. Is this the only amendment given in the supplementary material? The authors have even included a few illustrations for understanding purposes. Bulbul August 19, — 7: As the exams are closing by, students are looking for updates which are applicable for May examinations. Admin May 2, — 1: You may want to like our Page on Facebook for more updates like this. File all GST returns for your clients with automated data reconciliation — No download required.