AS 10 Property, Plant and Equipment prescribe the accounting treatment for properties, P&E (Plant and Equipment) so that the users of financial statements could recognize and appreciate the information about the investment made by any enterprise in property, P&E and the also understand the changes made in such investments.
It is also important to note that AS 6 – Accounting for Depreciation stands withdrawn and such matters related to depreciation is included in AS 10.
AS 10 is to be applied in accounting for property, P&E (Plant and Equipment) and this standard are not applicable to:
(a) biological assets which are related to agricultural activities except for bearer plants. The Standard is applicable to bearer plants, however, it doesn’t apply to the produce on bearer plants; and
(b) wasting assets which include mineral rights, expenses related to exploration for and extraction of oil, minerals, natural gas and other non-regenerative resources.
The cost of property and P&E should be recognized as an asset only if: (i) it is apparent that the future economic benefits related to such asset would flow to the business; and (ii) the cost of such asset could be reliably measured.
An enterprise can select the revaluation model or the cost model as the accounting policy and employ the same to the entire class of its properties and P&E. According to the cost model, after recognizing the asset as an item of property or plant and equipment, it should be carried at the cost less the accumulated depreciation and the accumulated impairment losses (if any).
As per revaluation model, once the asset is recognized and its fair value could be measured reliably, then it must be carried at the revalued amount, which is the fair value of such asset at the date of the revaluation as reduced any following accumulated depreciation and accumulated impairment losses (if any). Revaluations must be done at regular intervals for ensuring that the carrying amount doesn’t differ much from that which would be determined using the fair value at balance sheet date.
As per the standard, depreciation charge for every period must be recognized in the P/L Statement unless it’s included in carrying the amount of any another asset. Depreciable amount of any asset should be allocated on a methodical basis over the useful life of the asset.
Every part of property or P&E (Plant and Equipment) whose cost is substantial with respect to the overall cost of the item must be depreciated separately.
The standard also prescribes, that the residual value and useful life of an asset must be reviewed at the end of each financial year and, in case the expectations vary from the previous estimates, changes must be accounted for as changes in accounting estimate as per Accounting Standard 5 – Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.
The method of depreciation employed must reflect the pattern of future economic benefits of the asset consumed by an enterprise. Various depreciation methods could be used for allocating the depreciable amount of an asset on a methodical basis over the useful life of the asset. The methods include SLM (Straight-line Method), diminishing balance method or units of production method.
Ind AS 16 Property, Plant, and Equipment deal with accounting for fixed assets which are covered by AS 10. This Ind AS also deals with the depreciation of property, plant, and equipment that covered by AS 6. The key differences between the existing AS 10 and Ind AS 10 are mentioned below:
|Particulars||Ind AS 16||AS 10|
|Accounting for real estate||Ind AS 16 doesn’t exclude real estate developers||AS 10 explicitly excludes from its scope the accounting for real estate developers|
|Capitalization of inspections cost||Ind AS 16 necessitates capitalization of major inspections cost with consequent de-recognition of any residual carrying the amount of cost of the prior inspection||AS 10 doesn’t deal with such aspect|
|Self-constructed assets||Ind AS 16 with respect to self-constructed assets, explicitly state that unusual amounts of labor, wasted material or other resources employed in constructing any asset aren’t included in asset’s cost||AS 10 doesn’t mention the same|
|Joint Ownership||AS 10 deals specifically with fixed assets which are jointly owned with others||Ind AS 16 doesn’t deal specifically with this as these are covered in Ind AS 31|
|Assets Held for Sale and Fixed Assets retired from Active Use||Ind AS 16 doesn’t deal with assets held for sale as the accounting treatment is defined in Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations.||AS 10 deals with accounting for assets held for sale and items of fixed assets retired from active use|