Overview Of Accounting Standards: Notes(Part- 2) | Accounting for CA Intermediate (Old Scheme) PDF Download

 Page 1


 
 
3.64 
 
ACCOUNTING 
 2.4 AS 10 (REVISED): PROPERTY, PLANT AND 
EQUIPMENT 
Introduction 
The objective of this Standard is to prescribe accounting treatment for Property, 
Plant and Equipment (PPE). 
 
The principal issues in Accounting for PPE are: 
 
Scope of the Standard 
As a general principle, AS 10 (Revised) should be applied in accounting for PPE. 
Exception: 
When another Accounting Standard requires or permits a different accounting 
treatment. 
Objectives of 
AS 10 (Revised)
Prescribe 
"Accounting 
Treatment 
for PPE"
Help the 
Users of 
Financial 
Statements 
to 
understand 
Information about 
Investment in 
PPE
Changes in such 
Investment 
Principle 
Issues in 
Accounting 
of PPE
Recognition of 
PPE
Determination 
of their carrying 
amounts 
Depreciation 
charge
Impairment 
losses to be 
recognised in 
relation to 
them
Page 2


 
 
3.64 
 
ACCOUNTING 
 2.4 AS 10 (REVISED): PROPERTY, PLANT AND 
EQUIPMENT 
Introduction 
The objective of this Standard is to prescribe accounting treatment for Property, 
Plant and Equipment (PPE). 
 
The principal issues in Accounting for PPE are: 
 
Scope of the Standard 
As a general principle, AS 10 (Revised) should be applied in accounting for PPE. 
Exception: 
When another Accounting Standard requires or permits a different accounting 
treatment. 
Objectives of 
AS 10 (Revised)
Prescribe 
"Accounting 
Treatment 
for PPE"
Help the 
Users of 
Financial 
Statements 
to 
understand 
Information about 
Investment in 
PPE
Changes in such 
Investment 
Principle 
Issues in 
Accounting 
of PPE
Recognition of 
PPE
Determination 
of their carrying 
amounts 
Depreciation 
charge
Impairment 
losses to be 
recognised in 
relation to 
them
 
 
3.65 
 
OVERVIEW OF ACCOUNTING STANDARDS 
 
Example: AS 19
1
 on Leases, requires an enterprise to evaluate its recognition of an 
item of leased PPE on the basis of the transfer of risks and rewards. However, it 
may be noted that in such cases other aspects of the accounting treatment for 
these assets, including depreciation, are prescribed by this Standard. 
This Standard does not apply to: 
 
Note: AS 10 (Revised) applies to Bearer Plants but it does not apply to the 
produce on Bearer Plants. 
Clarifications:  
1. AS 10 (Revised) applies to PPE used to develop or maintain the assets 
described above. 
2. Investment property (defined in AS 13 (Revised)), should be accounted for 
only in accordance with the Cost model prescribed in this standard. 
DEFINITION OF PROPERTY, PLANT AND EQUIPMENT(PPE) 
There are 2 conditions to be satisfied for a TANGIBLE item to be called PPE. PPE are 
tangible items that: 
                                                
 
 
AS 10 (Revised)
Not Applicable to 
Biological Assets (other than
Bearer Plants) related to
agricultural activity
Wasting Assets including Mineral
rights, Expenditure on the exploration
for and extraction of minerals, oil,
natural gas and similar non-
regenerative resources
Page 3


 
 
3.64 
 
ACCOUNTING 
 2.4 AS 10 (REVISED): PROPERTY, PLANT AND 
EQUIPMENT 
Introduction 
The objective of this Standard is to prescribe accounting treatment for Property, 
Plant and Equipment (PPE). 
 
The principal issues in Accounting for PPE are: 
 
Scope of the Standard 
As a general principle, AS 10 (Revised) should be applied in accounting for PPE. 
Exception: 
When another Accounting Standard requires or permits a different accounting 
treatment. 
Objectives of 
AS 10 (Revised)
Prescribe 
"Accounting 
Treatment 
for PPE"
Help the 
Users of 
Financial 
Statements 
to 
understand 
Information about 
Investment in 
PPE
Changes in such 
Investment 
Principle 
Issues in 
Accounting 
of PPE
Recognition of 
PPE
Determination 
of their carrying 
amounts 
Depreciation 
charge
Impairment 
losses to be 
recognised in 
relation to 
them
 
 
3.65 
 
OVERVIEW OF ACCOUNTING STANDARDS 
 
Example: AS 19
1
 on Leases, requires an enterprise to evaluate its recognition of an 
item of leased PPE on the basis of the transfer of risks and rewards. However, it 
may be noted that in such cases other aspects of the accounting treatment for 
these assets, including depreciation, are prescribed by this Standard. 
This Standard does not apply to: 
 
Note: AS 10 (Revised) applies to Bearer Plants but it does not apply to the 
produce on Bearer Plants. 
Clarifications:  
1. AS 10 (Revised) applies to PPE used to develop or maintain the assets 
described above. 
2. Investment property (defined in AS 13 (Revised)), should be accounted for 
only in accordance with the Cost model prescribed in this standard. 
DEFINITION OF PROPERTY, PLANT AND EQUIPMENT(PPE) 
There are 2 conditions to be satisfied for a TANGIBLE item to be called PPE. PPE are 
tangible items that: 
                                                
 
 
AS 10 (Revised)
Not Applicable to 
Biological Assets (other than
Bearer Plants) related to
agricultural activity
Wasting Assets including Mineral
rights, Expenditure on the exploration
for and extraction of minerals, oil,
natural gas and similar non-
regenerative resources
 
 
3.66 
 
ACCOUNTING 
 
Note: Intangible items are covered under AS 26. 
“Administrative purposes”: The term ‘Administrative purposes’ has been used in 
wider sense to include all business purposes. Thus, PPE would include assets used 
for: 
? Selling and distribution 
? Finance and accounting 
? Personnel and other functions of an Enterprise. 
Items of PPE may also be acquired for safety or environmental reasons.  
The acquisition of such PPE, although not directly increasing the future economic 
benefits of any particular existing item of PPE, may be necessary for an enterprise 
to obtain the future economic benefits from its other assets.  
Such items of PPE qualify for recognition as assets because they enable an 
enterprise to derive future economic benefits from related assets in excess of what 
could be derived had those items not been acquired.  
Example: A chemical manufacturer may install new chemical handling processes to 
comply with environmental requirements for the production and storage of 
dangerous chemicals; related plant enhancements are recognised as an asset because 
without them the enterprise is unable to manufacture and sell chemicals.  
The resulting carrying amount of such an asset and related assets is reviewed for 
impairment in accordance with AS 28 (Impairment of Assets)
2
. 
                                                
 
PPE
(Tangible Items)
Condition 1: 
Held for 
Use in Production or Supply 
of Goods or Services
For Rental to others
For Administrative purposes
Condition 2: 
Expected to be 
Used for more than 12 
months
Page 4


 
 
3.64 
 
ACCOUNTING 
 2.4 AS 10 (REVISED): PROPERTY, PLANT AND 
EQUIPMENT 
Introduction 
The objective of this Standard is to prescribe accounting treatment for Property, 
Plant and Equipment (PPE). 
 
The principal issues in Accounting for PPE are: 
 
Scope of the Standard 
As a general principle, AS 10 (Revised) should be applied in accounting for PPE. 
Exception: 
When another Accounting Standard requires or permits a different accounting 
treatment. 
Objectives of 
AS 10 (Revised)
Prescribe 
"Accounting 
Treatment 
for PPE"
Help the 
Users of 
Financial 
Statements 
to 
understand 
Information about 
Investment in 
PPE
Changes in such 
Investment 
Principle 
Issues in 
Accounting 
of PPE
Recognition of 
PPE
Determination 
of their carrying 
amounts 
Depreciation 
charge
Impairment 
losses to be 
recognised in 
relation to 
them
 
 
3.65 
 
OVERVIEW OF ACCOUNTING STANDARDS 
 
Example: AS 19
1
 on Leases, requires an enterprise to evaluate its recognition of an 
item of leased PPE on the basis of the transfer of risks and rewards. However, it 
may be noted that in such cases other aspects of the accounting treatment for 
these assets, including depreciation, are prescribed by this Standard. 
This Standard does not apply to: 
 
Note: AS 10 (Revised) applies to Bearer Plants but it does not apply to the 
produce on Bearer Plants. 
Clarifications:  
1. AS 10 (Revised) applies to PPE used to develop or maintain the assets 
described above. 
2. Investment property (defined in AS 13 (Revised)), should be accounted for 
only in accordance with the Cost model prescribed in this standard. 
DEFINITION OF PROPERTY, PLANT AND EQUIPMENT(PPE) 
There are 2 conditions to be satisfied for a TANGIBLE item to be called PPE. PPE are 
tangible items that: 
                                                
 
 
AS 10 (Revised)
Not Applicable to 
Biological Assets (other than
Bearer Plants) related to
agricultural activity
Wasting Assets including Mineral
rights, Expenditure on the exploration
for and extraction of minerals, oil,
natural gas and similar non-
regenerative resources
 
 
3.66 
 
ACCOUNTING 
 
Note: Intangible items are covered under AS 26. 
“Administrative purposes”: The term ‘Administrative purposes’ has been used in 
wider sense to include all business purposes. Thus, PPE would include assets used 
for: 
? Selling and distribution 
? Finance and accounting 
? Personnel and other functions of an Enterprise. 
Items of PPE may also be acquired for safety or environmental reasons.  
The acquisition of such PPE, although not directly increasing the future economic 
benefits of any particular existing item of PPE, may be necessary for an enterprise 
to obtain the future economic benefits from its other assets.  
Such items of PPE qualify for recognition as assets because they enable an 
enterprise to derive future economic benefits from related assets in excess of what 
could be derived had those items not been acquired.  
Example: A chemical manufacturer may install new chemical handling processes to 
comply with environmental requirements for the production and storage of 
dangerous chemicals; related plant enhancements are recognised as an asset because 
without them the enterprise is unable to manufacture and sell chemicals.  
The resulting carrying amount of such an asset and related assets is reviewed for 
impairment in accordance with AS 28 (Impairment of Assets)
2
. 
                                                
 
PPE
(Tangible Items)
Condition 1: 
Held for 
Use in Production or Supply 
of Goods or Services
For Rental to others
For Administrative purposes
Condition 2: 
Expected to be 
Used for more than 12 
months
 
 
3.67 
 
OVERVIEW OF ACCOUNTING STANDARDS 
 
OTHER DEFINITIONS 
1. Biological Asset: An Accounting Standard on “Agriculture” is under 
formulation, which will, inter alia, cover accounting for livestock. Till the time, 
the Accounting Standard on “Agriculture” is issued, accounting for livestock 
meeting the definition of PPE, will be covered as per AS 10 (Revised). 
 
2. Bearer Plant: Is a plant that (satisfies all 3 conditions): 
 
Note: When bearer plants are no longer used to bear produce they might be cut 
down and sold as scrap. For example - use as firewood. Such incidental scrap sales 
would not prevent the plant from satisfying the definition of a Bearer Plant. 
The following are not Bearer Plants: 
(a) Plants cultivated to be harvested as Agricultural produce  
 Example: Trees grown for use as lumber 
(b) 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  
 Example: Trees which are cultivated both for their fruit and their lumber 
 
Biological Asset 
Living Animal 
AS 10 (Revised) 
does not apply if definition of 
PPE not met
Plant 
AS 10 (Revised) applies to 
Bearer Plants 
Is used in the production or supply
Is expected to bear produce
Has a remote likelihood of being
sold as Agricultural produce
•Of Agricultural produce
•For more than a period of
12 months
•Except for incidental scrap
sales
Page 5


 
 
3.64 
 
ACCOUNTING 
 2.4 AS 10 (REVISED): PROPERTY, PLANT AND 
EQUIPMENT 
Introduction 
The objective of this Standard is to prescribe accounting treatment for Property, 
Plant and Equipment (PPE). 
 
The principal issues in Accounting for PPE are: 
 
Scope of the Standard 
As a general principle, AS 10 (Revised) should be applied in accounting for PPE. 
Exception: 
When another Accounting Standard requires or permits a different accounting 
treatment. 
Objectives of 
AS 10 (Revised)
Prescribe 
"Accounting 
Treatment 
for PPE"
Help the 
Users of 
Financial 
Statements 
to 
understand 
Information about 
Investment in 
PPE
Changes in such 
Investment 
Principle 
Issues in 
Accounting 
of PPE
Recognition of 
PPE
Determination 
of their carrying 
amounts 
Depreciation 
charge
Impairment 
losses to be 
recognised in 
relation to 
them
 
 
3.65 
 
OVERVIEW OF ACCOUNTING STANDARDS 
 
Example: AS 19
1
 on Leases, requires an enterprise to evaluate its recognition of an 
item of leased PPE on the basis of the transfer of risks and rewards. However, it 
may be noted that in such cases other aspects of the accounting treatment for 
these assets, including depreciation, are prescribed by this Standard. 
This Standard does not apply to: 
 
Note: AS 10 (Revised) applies to Bearer Plants but it does not apply to the 
produce on Bearer Plants. 
Clarifications:  
1. AS 10 (Revised) applies to PPE used to develop or maintain the assets 
described above. 
2. Investment property (defined in AS 13 (Revised)), should be accounted for 
only in accordance with the Cost model prescribed in this standard. 
DEFINITION OF PROPERTY, PLANT AND EQUIPMENT(PPE) 
There are 2 conditions to be satisfied for a TANGIBLE item to be called PPE. PPE are 
tangible items that: 
                                                
 
 
AS 10 (Revised)
Not Applicable to 
Biological Assets (other than
Bearer Plants) related to
agricultural activity
Wasting Assets including Mineral
rights, Expenditure on the exploration
for and extraction of minerals, oil,
natural gas and similar non-
regenerative resources
 
 
3.66 
 
ACCOUNTING 
 
Note: Intangible items are covered under AS 26. 
“Administrative purposes”: The term ‘Administrative purposes’ has been used in 
wider sense to include all business purposes. Thus, PPE would include assets used 
for: 
? Selling and distribution 
? Finance and accounting 
? Personnel and other functions of an Enterprise. 
Items of PPE may also be acquired for safety or environmental reasons.  
The acquisition of such PPE, although not directly increasing the future economic 
benefits of any particular existing item of PPE, may be necessary for an enterprise 
to obtain the future economic benefits from its other assets.  
Such items of PPE qualify for recognition as assets because they enable an 
enterprise to derive future economic benefits from related assets in excess of what 
could be derived had those items not been acquired.  
Example: A chemical manufacturer may install new chemical handling processes to 
comply with environmental requirements for the production and storage of 
dangerous chemicals; related plant enhancements are recognised as an asset because 
without them the enterprise is unable to manufacture and sell chemicals.  
The resulting carrying amount of such an asset and related assets is reviewed for 
impairment in accordance with AS 28 (Impairment of Assets)
2
. 
                                                
 
PPE
(Tangible Items)
Condition 1: 
Held for 
Use in Production or Supply 
of Goods or Services
For Rental to others
For Administrative purposes
Condition 2: 
Expected to be 
Used for more than 12 
months
 
 
3.67 
 
OVERVIEW OF ACCOUNTING STANDARDS 
 
OTHER DEFINITIONS 
1. Biological Asset: An Accounting Standard on “Agriculture” is under 
formulation, which will, inter alia, cover accounting for livestock. Till the time, 
the Accounting Standard on “Agriculture” is issued, accounting for livestock 
meeting the definition of PPE, will be covered as per AS 10 (Revised). 
 
2. Bearer Plant: Is a plant that (satisfies all 3 conditions): 
 
Note: When bearer plants are no longer used to bear produce they might be cut 
down and sold as scrap. For example - use as firewood. Such incidental scrap sales 
would not prevent the plant from satisfying the definition of a Bearer Plant. 
The following are not Bearer Plants: 
(a) Plants cultivated to be harvested as Agricultural produce  
 Example: Trees grown for use as lumber 
(b) 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  
 Example: Trees which are cultivated both for their fruit and their lumber 
 
Biological Asset 
Living Animal 
AS 10 (Revised) 
does not apply if definition of 
PPE not met
Plant 
AS 10 (Revised) applies to 
Bearer Plants 
Is used in the production or supply
Is expected to bear produce
Has a remote likelihood of being
sold as Agricultural produce
•Of Agricultural produce
•For more than a period of
12 months
•Except for incidental scrap
sales
 
 
3.68 
 
ACCOUNTING 
(c) Annual crops  
 Example: Maize and wheat 
 
Agricultural Produce is the harvested product of Biological Assets of the enterprise. 
3. Agricultural Activity: Is the management by an Enterprise of: 
o Biological transformation; and  
o Harvest of Biological Assets  
? For sale, Or  
? For conversion into Agricultural Produce, Or  
? Into additional Biological Assets 
 
Recognition Criteria for PPE 
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 
What are not 
"Bearer Plants" 
Plants cultivated to be 
harvested as Agricultural 
produce 
Trees grown for use as 
lumber
Plants cultivated to 
Produce Agricultural produce 
And 
Harvest and sell the plant as 
Agricultural produce
Trees which are cultivated both for 
their fruit and their lumber
Annual Crops 
Maize and wheat
Agricultural 
Activity 
Management 
Biological 
transformation 
and harvest of 
Biological Assets 
For Sale 
For Conversion into 
Agriculture Produce 
Into Additional 
Biological Assets