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Thread: 08 - Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

  1. #11
    IND-AS
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    Thumbs up Cost model of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Cost model of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment


    Cost model

    30. After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.


  2. #12
    IND-AS
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    Thumbs up Revaluation model of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Revaluation model of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment



    Revaluation model

    31. After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.

    32. The fair value of land and buildings is usually determined from market -based evidence by appraisal that is normally undertaken by professionally qualified valuers. The fair value of items of plant and equipment is usually their market value determined by appraisal.

    33. If there is no market-based evidence of fair value because of the specialised nature of the item of property, plant and equipment and the item is rarely sold, except as part of a continuing business, an entity may need to estimate fair value using an income or a depreciated replacement cost approach.

    34. The frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment being revalued. When the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is required. Some items of property, plant and equipment experience significant and volatile changes in fair value, thus necessitating annual revaluation. Such
    frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years.

    35. When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is treated in one of the following ways:

    (a) restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount. This method is often used when an asset is revalued by means of applying an index to determine its depreciated replacement cost.
    (b) eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset . This method is often used for buildings.

    The amount of the adjustment arising on the restatement or elimination of accumulated depreciation forms part of the increase or decrease in carrying amount that is accounted for in accordance with paragraphs 39 and 40.

    36. If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued.

    37. A class of property, plant and equipment is a grouping of assets of a similar nature and use in an entityís operations. The following are examples of separate classes:
    (i) land;
    (ii) land and buildings;
    (iii) machinery;
    (iv) ships;
    (v) aircraft;
    (vi) motor vehicles;
    (vii) furniture and fixtures; and
    (viii) office equipment.

    38. The items within a class of property, plan t and equipment are revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financial statements that are a mixture of costs and values as at different dates. However, a class of assets may be revalued on a roll ing basis provided revaluation of the class of assets is completed within a short period and provided the revaluations are kept up to date.

    39. If an assetís carrying amount is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss.

    40. If an assetís carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The
    decrease recognised in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.

    41. The revaluation surplus included in equity in respect of an item of property, plant and equipment may be transferred directly to retained earnings when the asset is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the assetís original cost. Transfers from revaluation surplus to retained earnings are not made through profit or loss.

    42. The effects of taxes on income, if any, resulting from the revaluation of property, plant and equipment are recognised and disclosed in accordance with Ind AS 12 Income Taxes.


  3. #13
    IND-AS
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    Thumbs up Depreciation of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Depreciation of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment


    Depreciation

    43. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

    44. An entity allocates the amount initially recognised in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft, whether owned or subject to a finance lease. Similarly, if an entity acquires property, plant and equipment subject to an operating lease in which it is the lessor, it may be appropriate to depreciate separately amounts reflected in the cost of that item that are attributable to favourable or unfavourable lease terms relative to market terms.

    45. A significant part of an item of property, plant and equipment may have a useful life and a depreciation method that are the same as the useful life and the depreciation method of another significant pa rt of that same item. Such parts may be grouped in determining the depreciation charge.

    46. To the extent that an entity depreciates separately some parts of an item of property, plant and equipment, it also depreciates separately the remainder of the item. The remainder consists of the parts of the item that are individually not significant. If an entity has varying expectations for these parts, approximation techniques may be necessary to depreciate the remainder in a manner that faithfully represents the consumption pattern and/or useful life of its parts.

    47. An entity may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item.

    48. The depreciation charge for each period shall be recognised in profit or loss unless it is included in the carrying amount of another asset.

    49. The depreciation charge for a period is usually recognised in profit or loss. However, sometimes, the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the depreciation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the depreciation of manufacturing plant and equipment is included in the costs of conversion of inventories (see Ind AS 2). Similarly, depreciation of property, plant and equipment used for development activities may be included in the cost of an intangible asset recognised in accordance with Ind AS 38 Intangible Assets.



  4. #14
    IND-AS
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    Thumbs up Depreciable amount and depreciation period of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Depreciable amount and depreciation period of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment



    Depreciable amount and depreciation period


    50. The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.

    51. The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate in accordance with Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors .

    52. Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as long as the assetís residual value does not exceed its carrying amount. Repair and maintenance of an asset do not negate the need to depreciate it.

    53. The depreciable amount of an asset is d etermined after deducting its residual value. In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount.

    54. The residual value of an asset may increase to an amount equal to o r greater than the assetís carrying amount. If it does, the assetís depreciation charge is zero unless and until its residual value subsequently decreases to an amount below the assetís carrying amount.

    55. Depreciation of an asset begins when it is avail able for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or include d in a disposal group that is classified as held for sale) in accordance with Ind AS 105 and the date that the asset is derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no production.

    56. The future economic benefits embodied in an asset are consumed by an entity principally through its use. However, other factors, such as technical or commercial obsolescence and wear and tear while an asset remains idle, often result in the diminution of the economic benefits that might have been obtained from the asset. Consequently, all the following factors are considered in determining the useful life of an asset:

    (a) expected usage of the asset. Usage is assessed by reference to the assetís expected capacity or physical output.
    (b) expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used and the repair and maintenance programme, and the care and maintenance of the asset while idle.
    (c) technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset.
    (d) legal or similar limits on the use of the asset, such as the expiry dates of related leases.

    57. The useful life of an asset is defined in terms of the assetís expected utility to the entity. The asset management policy of the entity may involve the disposal of assets after a specified time or after consumption of a specified proportion of the future economic benefits embodied in the asset. Therefore, the useful life of an asset may be shorter than its economic life. The estimation of the useful life of the asset is a matter of judgement based on the experience of the entity with similar assets.

    58. Land and buildings are separable assets and are accounted for separately, even when they are acquired together. With some exceptions, such as quarries and sites used for landfill, land has an unlimited useful life and therefore is not depreciated. Buildings have a limited useful life and therefore are depreciable assets. An increase in the value of the land on which a building stands does not affect the determination of the depreciable amount of the building.

    59. If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is depreciated over the period of benefits obtained by incurring those costs. In some cases, the land itself may have a limited useful life, in which case it is depreciated in a manner that reflects the benefits to be derived from it.


  5. #15
    IND-AS
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    Thumbs up Depreciation method of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Depreciation method of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment


    Depreciation method

    60. The depreciation method used shall reflect the pattern in which the assetís future economic benefits are expected to be consumed by the entity.

    61. The depreciation method applied to an asset shall be reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method shall be changed to reflect the changed pattern. Such a change shall be accounted for as a change in an accounting estimate in accordance with Ind AS 8.

    62. A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method and the units of production method. Straight-line depreciation results in a constant charge over the useful life if the assetís residual value does not change. The diminishing balance method results in a decreasing charge over the useful life. The units of production method results in a charge based on the expected use or output. The entity selects the method that most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. That method is applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic benefits.


  6. #16
    IND-AS
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    Thumbs up Impairment of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Impairment of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment



    Impairment

    63. To determine whether an item of property, plant and equipment is impaired, an entity applies Ind AS 36 Impairment of Assets. That Standard explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss.

    64. [Refer Appendix 1]


  7. #17
    IND-AS
    Guest

    Thumbs up Compensation for impairment of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Compensation for impairment of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment



    Compensation for impairment

    65. Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up shall be included in profit or loss when the compensation becomes receivable.

    66. Impairments or losses of items of property, plant and equipment, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events and are accounted for separately as follows:

    (a) impairments of items of property, plant an d equipment are recognised in accordance with Ind AS 36;
    (b) derecognition of items of property, plant and equipment retired or disposed of is determined in accordance with this Standard;
    (c) compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in determining profit or loss when it becomes receivable; and
    (d) the cost of items of property, plant and equipment restored, purchased or constructed as replacements is determined in accordance with this Standard.


  8. #18
    IND-AS
    Guest

    Thumbs up Derecognition of Indian Accounting Standard (Ind AS) 16 -Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Derecognition of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment


    Derecognition

    67. The carrying amount of an item of property, plant and equipment shall be derecognised:
    (a) on disposal; or
    (b) when no future economic benefits are expected from its use or disposal.

    68. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit or loss when the item is derecognised (unless Ind AS 17 requires otherwise on a sale and leaseback). Gains shall not be classified as revenue.

    68A. However, an entity that, in t he course of its ordinary activities, routinely sells items of property, plant and equipment that it has held for rental to others shall transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets shall be recognised as revenue in accordance with Ind AS 18 Revenue. Ind AS 105 does not apply when assets that are held for sale in the ordinary course of business are transferred to inventories.

    69. The disposal of an item of property, plant and equipment may occur in a variety of ways (eg by sale, by entering into a finance lease or by donation). In determining the date of disposal of an item, an entity applies the criteria in Ind AS 18 for recognising revenue from the sale of goods. Ind AS 17 applies to disposal by a sale and leaseback.

    70. If, under the recognition principle in paragraph 7, an entity recognises in the carrying amount of an item of property, plant and equipment the cost of a replacement for part of the item, then it derecognises the carrying amount of the replaced part regardless of whether the replaced part had been depreciated separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed.

    71. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

    72. The consideration receivable on disposal of an item of property, plant and equipment is recognised initially at its fair value. If payment for the item is deferred, the consideration received is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration andthe cash price equivalent is recognised as interest revenue in accordance with
    Ind AS 18 reflecting the effective yield on the receivable.

    Last edited by IND-AS; 01-02-2011 at 04:47 PM.

  9. #19
    IND-AS
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    Thumbs up Disclosure of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Disclosure of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment


    Disclosure

    73. The financial statements shall disclose, for each class of property, plant and equipment:

    (a) the measurement bases used for determining the gross carrying amount;
    (b) the depreciation methods used;
    (c) the useful lives or the depreciation rates used;
    (d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; and
    (e) a reconciliation of the carrying amount at the beginning and end of the period showing:
    (i) additions;
    (ii) assets classified as held for sale or included in a disposal group classified as held for sale in accordance with Ind AS 105 and other disposals;
    (iii) acquisitions through business combinations;
    (iv) increases or decreases resulting from revaluations under paragraphs 31, 39 and 40 and from impairment losses recognised or reversed in other comprehensive income in accordance with Ind AS 36;
    (v) impairment losses recognised in profit or loss in accordance with Ind AS 36;
    (vi) impairment losses reversed in profit or loss in accordance with Ind AS 36;
    (vii) depreciation;
    (viii) the net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency, including the translation of a foreign operation into the presentation currency of the reporting entity; and
    (ix) other changes.

    74. The financial statements shall also disclose:

    (a) the existence and amounts of restrictions on title, and property, plant and equipment pledged as security for liabilities;
    (b) the amount of expenditures recognised in the carrying amount of an item of property, plant and equipment in the course of its construction;
    (c) the amount of contractual commitments for the acquisition of property, plant and equipment; and
    (d) if it is not disclosed separately in the statement of profit and loss, the amount of compensation from third parties for items of property, plant and equipment that were impaired, lost or given up that is included in profit or loss.

    75. Selection of the depreciation method and estimation of the useful life of assets are matters of judgement. Therefore, disclosure of the methods adopted and the estimated useful lives or depreciation rates provides users of financial statements with information that allows them to review the policies selected by management and enables comparisons to be made with other entities. For similar reasons, it is necessary to disclose:
    (a) depreciation, whether recognised in profit or loss or as a part of the cost of other assets, during a period; and
    (b) accumulated depreciation at the end of the period.

    76. In accordance with Ind AS 8 an entity discloses the nature and effect of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in subsequent periods. For property, plant and equipment, such disclosure may arise from changes in estimates with respect to:

    (a) residual values;
    (b) the estimated costs of dismantling, removing or restoring items of property, plant and equipment;
    (c) useful lives; and
    (d) depreciation methods.

    77. If items of property, plant and equipment are stated at revalued amounts, the following shall be disclosed:

    (a) the effective date of the revaluation;
    (b) whether an independent valuer was involved;
    (c) the methods and significant assumptions applied in estimating the itemsí fair values;
    (d) the extent to which the itemsí fair values were determined directly by reference to observable prices in an active market or recent market transactions on armís length terms or were estimated using other valuation techniques;
    (e) for each revalued class of property, plant and equipment, the carrying amount that would have been recognised had the assets been carried under the cost model; and
    (f) the revaluation surplus, indicating the change for the period and any restrictions on the distribution of the balance to shareholders.

    78. In accordance with Ind AS 36 an entity discloses information on impaired property, plant and equipment in addition to the information required by paragraph 73(e)(iv)Ė(vi).

    79. Users of financial statements may also find the following information relevant to their needs:

    (a) the carrying amount of temporarily idle property, plant and equipment;
    (b) the gross carrying amount of any fully depreciated property, plant and equipment that is still in use;
    (c) the carrying amount of property, plant and equipment retired from active use and not classified as held for sale in accordance with Ind AS 105; and
    (d) when the cost model is used, the fair value of property, plant and equipment when this is materially different from the carrying amount.

    Therefore, entities are encouraged to disclose these amounts.



  10. #20
    IND-AS
    Guest

    Thumbs up Appendix - A of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10) - Property, Plant and Equipment

    Appendix - A of Indian Accounting Standard (Ind AS) 16 - Earlier Accounting standard (6 & 10)

    Property, Plant and Equipment


    Appendix - A


    Changes in Existing Decommissioning, Restoration and Similar Liabilities


    This Appendix is an integral part of Ind AS 16 .

    Background


    1. Many entities have obligations to dismantle, remove and restore items of property, plant and equipment. In this Appendix such obligations are referred to as Ďdecommissioning, restoration and similar liabilitiesí. Under Ind AS 16, the cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity 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. Ind AS 37 contains requirements on how to measure decommissioning, restoration and similar liabilities. This Appendix provides guidance on how to account for the effect of changes in the measurement of existing decommissioning, restoration and similar liabilities.

    Scope

    2. This Appendix applies to changes in the measurement of any existing decommissioning, restoration or similar lia bility that is both:

    (a) recognised as part of the cost of an item of property, plant and equipment in accordance with Ind AS 16; and
    (b) recognised as a liability in accordance with Ind AS 37.

    For example, a decommissioning, restoration or similar liability ma y exist for decommissioning a plant, rehabilitating environmental damage in extractive industries, or removing equipment.

    Issue

    3. This Appendix addresses how the effect of the following events that change the measurement of an existing decommissioning, restoration or similar liability should be accounted for:

    (a) a change in the estimated outflow of resources embodying economic benefits (eg cash flows) required to settle the obligation;
    (b) a change in the current market -based discount rate as defined in paragraph 47 of Ind AS 37 (this includes changes in the time value of money and the risks specific to the liability); and
    (c) an increase that reflects the passage of time (also referred to as the unwinding of the discount).

    Accounting Principles

    4. Changes in the measurement of an existing decommissioning, restoration and similar liability that result from changes in the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the obligation, or a change in the discount rate, shall be accounted for in accordance with paragraphs 5Ė7 below.

    5. If the related asset is measured using the cost model:

    (a) subject to (b), changes in the liability shall be added to, or deducted from, the cost of the related asset in the current period.
    (b) the amount deducted from the cost of the asset shall not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess shall be recognised immediately in profit or loss.
    (c) if the adjustment results in an addition to the cost of an asset, the entity shall consider whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the entity shall test the asset for impairment by estimating its recoverable amount, and shall account for any impairment loss, in accordance with Ind AS 36.

    6. If the related asset is measured using the revaluation model:

    (a) changes in the liability alter the revaluation surplus or deficit previously recognised on that asset, so that:

    (i) a decrease in the liability shall (subject to (b)) be recognised in other comprehensive income and increase the revaluation surplus within equity, except that it shall be recognised in profit or loss to the extent that it reverses a revaluation deficit on the asset that was previously recognised in profit or loss;
    (ii) an increase in the liability shall be recognised in profit or loss, except that it shall be recognised in other comprehensive income and reduce the revaluation surplus within equity to the extent of any credit balance existing in the revaluation surplus in respect of that asset.

    (b) in the event that a decrease in the liability exceeds the carrying amount that would have been recognised had the asset been carried under the cost model, the excess shall be recognised immediately in profit or loss.

    (c) a change in the liability is an indication that the asset may have to be revalued in order to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Any such revaluation shall be taken into account in determining the amounts to be recognised in profit or loss or in other comprehensive income under (a). If a revaluation is necessary, all assets of that class shall be revalued.

    (d) Ind AS 1 requires disclosure in the statement of profit and loss of each component of other comprehensive income or expense. In complying with this requirement, the change in the revaluation surplus arising from a change in the liability shall be separately identified and disclosed as such.

    7. The adjusted depreciable amount of the asset is depreciated over its useful life.
    Therefore, once the related asset has reached the end of its useful life, all subsequent changes in the liability shall be recognised in profit or loss as they occur. This applies under both the cost model and the revaluation model.

    8. The periodic unwinding of the discount shall be recognised in profit or loss as a finance cost as it occurs. Capitalisation under Ind AS 23 is not permitted.


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