ICAI Notes- Unit 2: Assets Based Accounting Standards | Advanced Accounting for CA Intermediate PDF Download

 Page 1


 
 
 ASSETS BASED ACCOUNTING STANDARDS 
 
 
    
v 
 5.21 
 
 
 
 
 
LEARNING OUTCOMES 
 
UNIT 2: ACCOUNTING STANDARD 10  
PROPERTY, PLANT AND EQUIPMENT 
 
 
 
 After studying this unit, you will be able to comprehend the 
? Definition of PPE 
? What is the Recognition Criteria for PPE 
• Initial Costs  
• Subsequent Costs 
? Measurement at Recognition  
• What is included in elements of Cost  
• Measurement of Cost  
? Measurement after Recognition  
• Cost Model  
• Revaluation Model  
? Depreciation  
• Depreciable Amount and Useful life  
• Depreciation Method 
? Retirement in case of PPE  
? Derecognition aspects 
?    Disclosure requirements. 
 
 
 
© The Institute of Chartered Accountants of India
Page 2


 
 
 ASSETS BASED ACCOUNTING STANDARDS 
 
 
    
v 
 5.21 
 
 
 
 
 
LEARNING OUTCOMES 
 
UNIT 2: ACCOUNTING STANDARD 10  
PROPERTY, PLANT AND EQUIPMENT 
 
 
 
 After studying this unit, you will be able to comprehend the 
? Definition of PPE 
? What is the Recognition Criteria for PPE 
• Initial Costs  
• Subsequent Costs 
? Measurement at Recognition  
• What is included in elements of Cost  
• Measurement of Cost  
? Measurement after Recognition  
• Cost Model  
• Revaluation Model  
? Depreciation  
• Depreciable Amount and Useful life  
• Depreciation Method 
? Retirement in case of PPE  
? Derecognition aspects 
?    Disclosure requirements. 
 
 
 
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 5.22 
2.1 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: 
 
2.2 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. 
Example:  
AS 19 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. 
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
© The Institute of Chartered Accountants of India
Page 3


 
 
 ASSETS BASED ACCOUNTING STANDARDS 
 
 
    
v 
 5.21 
 
 
 
 
 
LEARNING OUTCOMES 
 
UNIT 2: ACCOUNTING STANDARD 10  
PROPERTY, PLANT AND EQUIPMENT 
 
 
 
 After studying this unit, you will be able to comprehend the 
? Definition of PPE 
? What is the Recognition Criteria for PPE 
• Initial Costs  
• Subsequent Costs 
? Measurement at Recognition  
• What is included in elements of Cost  
• Measurement of Cost  
? Measurement after Recognition  
• Cost Model  
• Revaluation Model  
? Depreciation  
• Depreciable Amount and Useful life  
• Depreciation Method 
? Retirement in case of PPE  
? Derecognition aspects 
?    Disclosure requirements. 
 
 
 
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 5.22 
2.1 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: 
 
2.2 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. 
Example:  
AS 19 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. 
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
© The Institute of Chartered Accountants of India
 
 
 ASSETS BASED ACCOUNTING STANDARDS 
 
 
    
v 
 5.23 
 
 
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. 
2.3 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: 
Note: Intangible items are covered under AS 26. 
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
PPE
(Tangible Items)
Condition 1: 
Held for 
Use in Production or Supply 
of Goods or Services, or
For Rental to others, or
For Administrative purposes
Condition 2: 
Expected to be 
Used for more than 12 
months
© The Institute of Chartered Accountants of India
Page 4


 
 
 ASSETS BASED ACCOUNTING STANDARDS 
 
 
    
v 
 5.21 
 
 
 
 
 
LEARNING OUTCOMES 
 
UNIT 2: ACCOUNTING STANDARD 10  
PROPERTY, PLANT AND EQUIPMENT 
 
 
 
 After studying this unit, you will be able to comprehend the 
? Definition of PPE 
? What is the Recognition Criteria for PPE 
• Initial Costs  
• Subsequent Costs 
? Measurement at Recognition  
• What is included in elements of Cost  
• Measurement of Cost  
? Measurement after Recognition  
• Cost Model  
• Revaluation Model  
? Depreciation  
• Depreciable Amount and Useful life  
• Depreciation Method 
? Retirement in case of PPE  
? Derecognition aspects 
?    Disclosure requirements. 
 
 
 
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 5.22 
2.1 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: 
 
2.2 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. 
Example:  
AS 19 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. 
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
© The Institute of Chartered Accountants of India
 
 
 ASSETS BASED ACCOUNTING STANDARDS 
 
 
    
v 
 5.23 
 
 
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. 
2.3 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: 
Note: Intangible items are covered under AS 26. 
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
PPE
(Tangible Items)
Condition 1: 
Held for 
Use in Production or Supply 
of Goods or Services, or
For Rental to others, or
For Administrative purposes
Condition 2: 
Expected to be 
Used for more than 12 
months
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 5.24 
“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’. 
2.4 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). 
© The Institute of Chartered Accountants of India
Page 5


 
 
 ASSETS BASED ACCOUNTING STANDARDS 
 
 
    
v 
 5.21 
 
 
 
 
 
LEARNING OUTCOMES 
 
UNIT 2: ACCOUNTING STANDARD 10  
PROPERTY, PLANT AND EQUIPMENT 
 
 
 
 After studying this unit, you will be able to comprehend the 
? Definition of PPE 
? What is the Recognition Criteria for PPE 
• Initial Costs  
• Subsequent Costs 
? Measurement at Recognition  
• What is included in elements of Cost  
• Measurement of Cost  
? Measurement after Recognition  
• Cost Model  
• Revaluation Model  
? Depreciation  
• Depreciable Amount and Useful life  
• Depreciation Method 
? Retirement in case of PPE  
? Derecognition aspects 
?    Disclosure requirements. 
 
 
 
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 5.22 
2.1 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: 
 
2.2 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. 
Example:  
AS 19 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. 
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
© The Institute of Chartered Accountants of India
 
 
 ASSETS BASED ACCOUNTING STANDARDS 
 
 
    
v 
 5.23 
 
 
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. 
2.3 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: 
Note: Intangible items are covered under AS 26. 
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
PPE
(Tangible Items)
Condition 1: 
Held for 
Use in Production or Supply 
of Goods or Services, or
For Rental to others, or
For Administrative purposes
Condition 2: 
Expected to be 
Used for more than 12 
months
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 5.24 
“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’. 
2.4 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). 
© The Institute of Chartered Accountants of India
 
 
 ASSETS BASED ACCOUNTING STANDARDS 
 
 
    
v 
 5.25 
 
 
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. 
 
Agricultural Produce is the harvested product of Biological Assets of the 
enterprise. 
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
What are not 
"Bearer Plants" 
Plants cultivated to be 
harvested as Agricultural 
produce 
Trees grown for use as 
lumber
Plants cultivated to 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 
Trees which are cultivated both for 
their fruit and their lumber
Annual Crops 
Maize and wheat
© The Institute of Chartered Accountants of India