Accounting Standards- AS

 Highlights of AS-10- Property, Plant and Equipment

1. Applicability - This AS Applied in accounting for         

        property, 

        plant and equipment 

        except when another Accounting Standard requires or permits a different accounting treatment.

2. This Standard does not apply to:                         

(a) biological assets related to agricultural activity other than bearer plants ( 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.

3. Recognition as Fixed Assets in Accounts                  

As per para 7 of AS 10 issued by ICAI, 

The cost of an item of property, plant and equipment should be recognized 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. 

4. As per para 9 of AS 10 issued by ICAI,                    

This Standard does not prescribe the unit of measure for recognition, i.e., what constitutes an item of property, plant and equipment. 

Thus, judgement is required in applying the recognition criteria to specific circumstances of an enterprise. 

An example of a ‘unit of measure’ can be a ‘project’ of construction of a manufacturing plant rather than individual assets comprising the project in appropriate cases for the purpose of capitalization of expenditure incurred during construction period. 

Similarly, it may be appropriate to aggregate individually insignificant items, such as moulds, tools and dies and to apply the criteria to the aggregate value. 

An enterprise may decide to expense an item which could otherwise have been included as property, plant and equipment, because the amount of the expenditure is not material.

5. An item of Property, plant and Equipment qualify for recognition shall be recorded at Cost.

Cost to be Included

a. Purchase price

b. Import duties 

c. Non –refundable purchase taxes, after deducting trade discounts and rebates. 

d. 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. 

e. 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.

**Example of Directly attributable cost as per AS 10

(a) costs of employee benefits (as defined in AS 15, Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment; 

(b) costs of site preparation; 

(c) initial delivery and handling costs; 

(d) installation and assembly costs; 

(e) costs of testing ;

 and 

(f) professional fees.

Examples of costs that are not costs of an item of property, plant and equipment are: 

(a) costs of opening a new facility or business, such as, inauguration costs; 

(b) costs of introducing a new product or service( including costs of advertising and promotional activities); 

(c) costs of conducting business in a new location or with a new class of customer (including costs of staff training); 

and 

(d) administration and other general overhead costs.

Definitions as per AS 10 :-                                                        

1. 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

2. Useful life is:                                           

 (a) the period over which an asset is expected to be available for use by an enterprise ; 

                                        or 

(b) the number of production or similar units expected to be obtained from the asset by an enterprise.