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Thread: 10 Accounting Standard 10 - Fixed Assets - AS 10

  1. #11
    Accounting Standards
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    Default Retirements and Disposals of Accounting Standard 10 - Fixed Assets - AS 10

    14. Retirements and Disposals


    14.1 An item of fixed asset is eliminated from the financial statements on disposal.


    14.2 Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the profit and loss statement.


    14.3 In historical cost financial statements, gains or losses arising on disposal are generally recognised in the profit and loss statement.


    14.4 On disposal of a previously revalued itemof fixed asset, the difference between net disposal proceeds and the net book value is normally charged or credited to the profit and loss statement except that, to the extent such a loss is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilised, it is charged directly to that account. The amount standing in revaluation reserve following the retirement or disposal of an asset which relates to that asset may be transferred to general reserve.

  2. #12
    Accounting Standards
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    Default Valuation of Fixed Assets in Special Cases of Accounting Standard 10 - Fixed Assets - AS 10

    15. Valuation of Fixed Assets in Special Cases of Accounting Standard 10 - Fixed Assets - AS 10


    15.1 In the case of fixed assets acquired on hire purchase terms, although legal ownership does not vest in the enterprise, such assets are recorded at their cash value, which, if not readily available, is calculated by assuming an appropriate rate of interest. They are shown in the balance sheet with an appropriate narration to indicate that the enterprise does not have full ownership thereof.


    15.2 Where an enterprise owns fixed assets jointly with others (otherwise than as a partner in a firm), the extent of its share in such assets, and the proportion in the original cost, accumulated depreciation and written down value are stated in the balance sheet. Alternatively, the pro rata cost of such jointly owned assets is grouped togetherwith similar fullyowned assets. Details of such jointly owned assets are indicated separately in the fixed assets register.


    15.3 Where several assets are purchased for a consolidated price, the consideration is apportioned to the various assets on a fair basis as determined by competent valuers.

  3. #13
    Accounting Standards
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    Default Fixed Assets of Special Types of Accounting Standard 10 - Fixed Assets - AS 10

    16. Fixed Assets of Special Types of Accounting Standard 10 - Fixed Assets - AS 10


    16.1 Goodwill, in general, is recorded in the books only when some consideration in money or money’s worth has been paid for it.Whenever a business is acquired for a price (payable either in cash or in shares or otherwise) which is in excess of the value of the net assets of the business
    taken over, the excess is termed as ‘goodwill’.Goodwill arises frombusiness connections, trade name or reputation of an enterprise or fromother intangible benefits enjoyed by an enterprise.


    16.2 As amatter of financial prudence, goodwill iswritten off over a period. However,many enterprises do notwrite off goodwill and retain it as an asset.

  4. #14
    Accounting Standards
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    Default Disclosure of Accounting Standard 10 - Fixed Assets - AS 10

    17. Disclosure of Accounting Standard 10 - Fixed Assets - AS 10


    17.1 Certain specific disclosures on accounting for fixed assets are already required by Accounting Standard 1 on ‘Disclosure of Accounting Policies’ and Accounting Standard 6 on ‘Depreciation Accounting’.

    17.2 Further disclosures that are sometimes made in financial statements include:


    (i) gross and net book values of fixed assets at the beginning and end of an accounting period showing additions, disposals, acquisitions and other movements;


    (ii) expenditure incurred on account of fixed assets in the course of construction or acquisition; and


    (iii) revalued amounts substituted for historical costs of fixed assets, the method adopted to compute the revalued amounts, the nature of any indices used, the year of any appraisal made, and whether an external valuer was involved, in case where fixed assets are stated at revalued amounts.

  5. #15
    Accounting Standards
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    Default Accounting Standard 10 - Fixed Assets - AS 10

    Accounting Standard


    18. The items determined in accordance with the definition in paragraph 6.1 of this Statement should be included under fixed assets in financial statements.


    19. The gross book value of a fixed asset should be either historical cost or a revaluation computed in accordance with this Standard. The method of accounting for fixed assets included at historical cost is set out in paragraphs 20 to 26; the method of accounting of revalued assets is set out in paragraphs 27 to 32.


    20. The cost of a fixed asset should comprise its purchase price and any attributable cost of bringing the asset to its working condition for its intended use.


    21. The cost of a self-constructed fixed asset should comprise those costs that relate directly to the specific asset and those that are attributable to the construction activity in general and can be allocated to the specific asset.


    22. When a fixed asset is acquired in exchange or in part exchange for another asset, the cost of the asset acquired should be recorded either at fair market value or at the net book value of the asset given up, adjusted for any balancing payment or receipt of cash or other consideration. For these purposes fair market value may be determined by reference either to the asset given up or to the asset acquired, whichever is more clearly evident. Fixed asset acquired in exchange for shares or other securities in the enterprise should be recorded at its fair market value, or the fair market value of the securities issued, whichever is more clearly evident.


    23. Subsequent expenditures related to an item of fixed asset should be added to its book value only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance.


    24. Material items retired from active use and held for disposal should be stated at the lower of their net book value and net realisable value and shown separately in the financial statements.


    25. Fixed asset should be eliminated from the financial statements on disposal or when no further benefit is expected from its use and disposal.


    26. Losses arising from the retirement or gains or losses arising from disposal of fixed asset which is carried at cost should be recognised in the profit and loss statement.


    27. When a fixed asset is revalued in financial statements, an entire class of assets should be revalued, or the selection of assets for revaluation should be made on a systematic basis. This basis should be disclosed.


    28. The revaluation in financial statements of a class of assets should not result in the net book value of that class being greater than the recoverable amount of assets of that class.


    29. When a fixed asset is revalued upwards, any accumulated depreciation existing at the date of the revaluation should not be credited to the profit and loss statement.


    30. An increase in net book value arising on revaluation of fixed assets should be credited directly to owners’ interests under the head of revaluation reserve, except that, to the extent that such increase is related to and not greater than a decrease arising on revaluation previously recorded as a charge to the profit and loss statement, it may be credited to the profit and loss statement. A decrease in net book value arising on revaluation of fixed asset should be charged directly to the profit and loss statement except that to the extent that such a decrease is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilised, it may be charged directly to that account.


    31. The provisions of paragraphs 23, 24 and 25 are also applicable to fixed assets included in financial statements at a revaluation.

    32. On disposal of a previously revalued item of fixed asset, the difference between net disposal proceeds and the net book value should be charged or credited to the profit and loss statement except that to the extent that such a loss is related to an increase which was previously
    recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilised, it may be charged directly to that account.


    33. Fixed assets acquired on hire purchase terms should be recorded at their cash value, which, if not readily available, should be calculated by assuming an appropriate rate of interest. They should be shown in the balance sheet with an appropriate narration to indicate that the enterprise does not have full ownership thereof.


    34. In the case of fixed assets owned by the enterprise jointly with others, the extent of the enterprise’s share in such assets, and the proportion of the original cost, accumulated depreciation and written down value should be stated in the balance sheet. Alternatively, the pro rata cost of such jointly owned assets may be grouped together with similar fully owned assets with an appropriate disclosure thereof.


    35. Where several fixed assets are purchased for a consolidated price, the consideration should be apportioned to the various assets on a fair basis as determined by competent valuers.


    36. Goodwill should be recorded in the books only when some consideration in money or money’s worth has been paid for it. Whenever a business is acquired for a price (payable in cash or in shares or otherwise) which is in excess of the value of the net assets of the business taken over, the excess should be termed as ‘goodwill’.

  6. #16
    Accounting Standards
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    Default Disclosure of Accounting Standard 10 - Fixed Assets - AS 10

    Disclosure of Accounting Standard 10 - Fixed Assets - AS 10


    39. The following information should be disclosed in the financial statements:


    (i) gross and net book values of fixed assets at the beginning and end of an accounting period showing additions, disposals, acquisitions and other movements;


    (ii) expenditure incurred on account of fixed assets in the course of construction or acquisition; and


    (iii) revalued amounts substituted for historical costs of fixed assets, the method adopted to compute the revalued amounts, the nature of indices used, the year of any appraisal made,
    and whether an external valuer was involved, in case where fixed assets are stated at revalued amounts.

  7. #17
    Accounting Standards
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    Default Accounting for Machinery Spares of Accounting Standard 10 - Fixed Assets - AS 10

    Accounting Standards Interpretation (ASI) 2

    Accounting for Machinery Spares

    Accounting Standard (AS)2, Valuationof Inventories and AS 10,Accounting for Fixed Assets ISSUE



    1. Which machinery spares are covered under AS 2 and AS 10 and what should be the accounting formachinery spares under the respective standards.

    CONSENSUS


    2. Machinery spares which are not specific to a particular item of fixed asset but can be used generally for various items of fixed assets should be treated as inventories for the purpose ofAS 2. Suchmachinery spares should be charged to the statement of profit and loss as and when issued for
    consumption in the ordinary course of operations.


    3. Whether to capitalise amachinery spare under AS 10 or notwill depend on the facts and circumstances of each case. However, the machinery spares of the following types should be capitalised being of the nature of capital spares/insurance spares –


    (i) Machinery spares which are specific to a particular item of fixed asset, i.e., they can be used only in connection with a particular item of the fixed asset, and


    (ii) their use is expected to be irregular.


    4. Machinery spares of the nature of capital spares/insurance spares should be capitalised separately at the time of their purchasewhether procured at the time of purchase of the fixed asset concerned or subsequently. The total cost of such capital spares/insurance spares should be allocated on a systematic basis over a period not exceeding the useful life of the principal
    item, i.e., the fixed asset to which they relate.


    5. When the related fixed asset is either discarded or sold, the written down value less disposal value, if any, of the capital spares/insurance spares should be written off.


    6. The stand-by equipment is a separate fixed asset in its own right and should be depreciated like any other fixed asset.

  8. #18
    Accounting Standards
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    Default BASIS FOR CONCLUSIONS of Accounting Standard 10 - Fixed Assets - AS 10

    BASIS FOR CONCLUSIONS of Accounting Standard 10 - Fixed Assets - AS 10


    7. Paragraphs 8.2 and 25 of AS 10, ‘Accounting for Fixed Assets’, state as below:


    “8.2 Stand-by equipment and servicing equipment are normally capitalised.Machinery spares are usually charged to the profit and loss statement as and when consumed. However, if such spares can be used only in connection with an item of fixed asset and their use is expected to be irregular, it may be appropriate to allocate the total cost on a systematic basis over a period not exceeding the useful life of the principal item.”


    “25. Fixed asset should be eliminated from the financial statements on disposal or when no further benefit is expected from its use and disposal.”

    8. Paragraph 4 of AS 2, ‘Valuation of Inventories’, states as below:
    “4. Inventories encompass goods purchased and held for resale, for example, merchandise purchased by a retailer and held for resale, computer software held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the enterprise and include materials, maintenance supplies, consumables and loose tools awaiting use in the production process. Inventories do not includemachinery spareswhich can be used only in connection with an item of fixed asset and whose use is expected to be irregular; such machinery spares are accounted for in accordance with Accounting Standard (AS) 10, Accounting for
    Fixed Assets.”

    9. Machinery spares of the nature of capital spares/insurance spares are capitalised. Capital spares/insurance spares are meant for occasional use. Since they can be used only in relation to a specific item of fixed asset, they are to be discarded in case that specific fixed asset is disposed of. In other words, such spares are integral parts of the fixed asset.


    10. A stand-by equipment is not of the nature of a spare but is of the nature of another piece of equipmentwhich is being used in themanufacturing process. For example, a generator set kept in store as a stand-by to the generator
    set which is being used in the manufacturing process. Therefore, the stand-by equipment is a separate fixed asset in its own right and is depreciated like any other fixed asset.
    Last edited by Accounting Standards; 17-08-2010 at 10:54 AM.

  9. #19
    Accounting Standards
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    Default Status of certain provisions of AS 10, Accounting for Fixed Assets, pursuant to the issuance of AS 19, Leases and AS 16, Borrowing Costs

    Status of certain provisions of AS 10, Accounting for Fixed Assets, pursuant to the issuance of AS 19, Leases and AS 16, Borrowing Costs



    1. Accounting Standard (AS) 19, Leases, has come into effect in respect of assets leased during accounting periods commencing on or after 1-4-2001. AS 19 also applies to assets acquired on hire purchase during accounting periods commencing on or after 1-4-2001. Accordingly, paragraphs 15.1 and 33 of Accounting Standard (AS) 10, Accounting for Fixed Assets, which deal with assets acquired on hire purchase terms, are not applicable in respect of assets acquired on hire purchase during accounting periods commencing on or after 1-4-2001.

    2. Pursuant to issuance of Accounting Standard (AS) 16, Borrowing Costs, provisions of paragraph 9.5 of Accounting Standard (AS) 10, Accounting for Fixed Assets, stand withdrawn to the extent they deal with borrowing costs. Paragraph 9.5 of AS 10 is reproduced below:


    "9.5 If the interval between the date a project is ready to commence commercial production and the date at which commercial production actually begins is prolonged, all expenses incurred during this period are charged to the profit and loss statement. However, the expenditure incurred during this period is also sometimes treated as deferred revenue expenditure to be amortised over a period not exceeding 3 to 5 years after the commencement of commercial production."


    It may be noted that paragraph 9.5 of AS 10 as reproduced above relates to "all expenses" incurred during the period. This expenditure would also include borrowing costs incurred during the said period. Since AS 16 specifically deals with the treatment of borrowing costs, the treatment provided by AS 16 would prevail over the provisions in this respect contained in AS 10, as the provisions of AS 10 are general in nature and apply to "all expenses".

    It may be noted that paragraphs 9.2 and 20 (except the first sentence) of AS 10, Accounting for Fixed Assets, have already been withdrawn pursuant to issuance of AS 16

  10. #20
    Accounting Standards
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    Default Disclosures regarding revalued fixed assets of Accounting Standard 10 - Fixed Assets - AS 10

    Query

    1. The querist has quoted the following disclosure requirement regarding revalued fixed assets under paragraph 39(iii) of Accounting Standard (AS) 10 on ‘Accounting for Fixed Assets’, issued by the Institute of Chartered Accountants of India:

    “39(iii) revalued amount substituted for historical cost of fixed assets, the method adopted to compute the revalued amounts, the nature of indices used, the year of any appraisal made, and whether an external valuer was involved, in case where fixed assets are stated at revalued amounts.”

    2.The querist has also quoted the following ‘Instructions’ to prepare balance sheet as per Part I of Schedule VI to the Companies Act:

    “Where sums have been added by writing up shall show the increased figures with the date of increase in place of the original cost. Each balance sheet for the first five years subsequent to the date of writing up shall also show the amount of increase made.”

    3. The querist has sought the opinion of the Expert Advisory Committee on the following issues arising from the above:



    (i) Once the period of five years from the date of revaluation has elapsed – whether the entity would still be bound to disclose all the information stated in para 39(iii) of AS 10.



    (ii) If yes, then for how many years the disclosure is contained by AS 10.



    Opinion

    1. The Committee notes the relevant disclosure requirements in case of revaluation of fixed assets as laid down in Accounting Standard (AS) 10 on ‘Accounting for Fixed Assets’, issued by the Institute of Chartered Accountants of India and instructions in Part I to Schedule VI to the Companies Act, 1956, which are reproduced in paras 1 and 2 of the query, respectively.

    2.The Committee further notes that AS 10 does not specify any time limit regarding the disclosures to be made in respect of the revalued fixed assets. Therefore, such information should be disclosed as long as the relevant asset continues to appear in the balance sheet at the revalued amount. The Committee also feels that since the accounts are basically prepared under historical cost convention, disclosure of information pertaining to revalued fixed assets required in para 39(iii) of AS 10 is imperative for meaningful understanding of financial statements.

    3. On the basis of the above, the Committee is of the following opinion in respect of the issues raised at paragraph 3 of the query:



    (i) Yes, so long as the relevant asset continues to appear in the balance sheet at the revalued amount, the entity is required to disclose the information stated in para 39 (iii) of AS 10.



    (ii) Please see (i) above.

    Opinion November 1, 1995

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