AS 10 PROPERTY PLANT & EQUIPMENT

The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment (PPE).  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.The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognised in relation to them.

Scope

This Standard should be applied in accounting for property, plant and equipment except when another Accounting Standard requires or permits a different accounting treatment.

Property, Plant & Equipment -

PPE are tangible items that:

1.  are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
2. are expected to be used during more than a period of twelve months.

Not applicable on

This Standard does not apply to:

•  (a) biological assets related to agricultural activity other than bearer plants. This Standard applies to bearer plants but it does not apply to the produce on bearer plants; and
•  (b) wasting assets including mineral rights, expenditure on the exploration for and extraction of minerals, oil, natural gas and similar non-regenerative resources
• However, this Standard applies to property, plant and equipment used to develop or maintain the assets described in (a) and (b) above.

Recognition

 The cost of an item of PPE 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) the cost of the item can be measured reliably

Definition-

The following terms are used in this Standard with the meanings specified:

Agricultural Activity is the management by an enterprise of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.

Agricultural Produce is the harvested product of biological assets of the enterprise.

Bearer plant is a plant that

(a) is used in the production or supply of agricultural produce;

 (b) is expected to bear produce for more than a period of twelve months; and

 (c) has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.

The following are not bearer plants:

1. plants cultivated to be harvested as agricultural produce (for example, trees grown for use as lumber);
2.  plants cultivated to produce agricultural produce when there is more than a remote likelihood that the entity will also harvest and sell the plant as agricultural produce, other than as incidental scrap sales (for example, trees that are cultivated both for their fruit and their lumber); and
3.  annual crops (for example, maize and wheat). When bearer plants are no longer used to bear produce they might be cut down and sold as scrap, for example, for use as firewood. Such incidental scrap sales would not prevent the plant from satisfying the definition of a bearer plant.
4. Carrying amount is the amount at which an asset is recognised after deducting any accumulated depreciation and accumulated impairment losses.
5. Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other Accounting Standards
6. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.
7.  Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
8. Property, plant and equipment are tangible items that:

(a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

(b) are expected to be used during more than a period of twelve months.

Measurement after recognition

 An enterprise should choose either the cost model or the revaluation model as its accounting policy and apply that policy to an entire class of PPE

• Cost of Asset can be measured on the basis of
• Cost model
• Revaluation model

• Cost model

                Cost less any accumulated depreciation and any accumulated impairment losses

The cost of an item of property, plant and equipment comprises:

 (a) its purchase price, including import duties and non –refundable purchase taxes, after deducting trade discounts and rebates.

 (b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management

(c) the initial estimate of the costs of dismantling, removing the item and restoring the site on which it is located, referred to as decommissioning, restoration and similar liabilities’, the obligation for which an enterprise incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

Recognition of costs ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management.

Examples of Directly Attributable Costs:

 • Costs of employee benefits arising directly from the construction or acquisition of the item of PPE

 • Costs of site preparation

 • Initial delivery and handling costs

 • Installation and assembly costs

 • Professional fees

• Costs of testing whether the asset is functioning properly , after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment)

• Revaluation model

                - Whose fair value can be measured reliably should be carried at a revalued amount less any subsequent accumulated depreciation and subsequent accumulated impairment losses

                - With sufficient regularity  For entire class of PPE to which an asset which is revalued belongs

Accounting for Revaluations  

 Increase in an asset’s carrying amount as a result of a revaluation is credited directly to owners’ interests under the heading of revaluation surplus.

 However, the increase should be recognised in the Statement of Profit and Loss to the extent it reverses a revaluation decrease of the same asset previously recognised in the Statement of Profit and Loss. 

Decrease in an asset’s carrying amount as a result of a revaluation is recognised in the Statement of Profit and Loss. However, 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.

Exclusions:

 • Administration and other general overhead costs

 • 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)

PPE acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets The cost of such an item of PPE is measured at fair value unless:

 (a)  the exchange transaction lacks commercial substance; or

 (b)  the fair value of neither the asset(s) received nor the asset(s) given up is reliably measurable.

The acquired item(s) is/are measured in this manner even if an enterprise cannot immediately derecognise the asset given up. If the acquired item(s) is/are not measured at fair value, its/their cost is measured at the carrying amount of the asset(s) given up. 

Subsequent costs-

• Cost of day to day servicing

Cost of labour & consumables – Not recognized

Costs of day-to-day servicing are primarily the costs of labour and consumables, and may include the cost of small parts. The purpose of such expenditures is often described as for the ‘repairs and maintenance’ of the item of property, plant and equipment

• Replacement cost

Cost of replacing part – recognized

Carrying amount of replaced part- derecognized

Parts of some items of property, plant and equipment may require replacement at regular intervals. For example, a furnace may require relining after a specified number of hours of use, or aircraft interiors such as seats and galleys may require replacement several times during the life of the airframe. Similarly, major parts of conveyor system, such as, conveyor belts, wire ropes, etc., may require replacement several times during the life of the conveyor system. Items of property, plant and equipment may also be acquired to make a less frequently recurring replacement, such as replacing the interior walls of a building, or to make a non-recurring replacement.

•  Regular Major Inspection Cost-

It is recognized in the carrying amount of the PPE if meets the basic criteria

Cost of previous inspection – derecognized

A condition of continuing to operate an item of property, plant and equipment (for example, an aircraft) may be performing regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous inspection (as distinct from physical parts) is derecognised

Deferred Payment Plan 

If an item of PPE is acquired under deferred payment plan, the difference of cash price equivalent and total payment is recognised as interest over the period of credit unless such interest is capitalised as per AS 16, Borrowing Costs.

Depreciation  

• Each part of an item of PPE with a cost that is significant in relation to the total cost of the item should be depreciated separately. 
• The depreciable amount should be allocated on a systematic basis over its useful life.
•  Depreciation charge for each period should be recognised in the Statement of Profit and Loss unless it is included in the carrying amount of another asset.
• Residual value & useful life to be reviewed at each balance sheet date. Any change is accounted for as change in an accounting estimate as per AS 5. 
• Depreciation method used should reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the enterprise.
•  Depreciation method to be reviewed at least at each financial year end. Any change is accounted for as change in an accounting estimate as per AS 5. 
• Depreciation methods include SLM, WDV & Units of Production method

Retirements

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. Any write-down should be recognised immediately in the Statement of Profit and Loss.

Derecognition  

• The carrying amount of an item of PPE should be derecognised on disposal or when no future economic benefits are expected from its use or disposal. 
• Gain/loss on derecognition should be recognised in Statement of Profit and Loss (unless AS 19 requires otherwise in a sale and leaseback) and should not be classified as revenue.
•  Gain/loss on derecognition is the difference between net disposal proceeds, if any, and the carrying amount of the derecognised item of PPE.