Why AS 10 Matters in Advance Accounting

Every business uses fixed assets like:

• Land & building
• Plant & machinery
• Furniture & vehicles

If PPE is not accounted for properly:

• Asset values become misleading
• Depreciation gets distorted
• Profits are wrongly reported

AS 10 lays down clear rules for recognition, measurement, depreciation, and disposal of Property, Plant and Equipment.

Objective of AS 10

To prescribe the accounting treatment for PPE so that users can understand:

• Investment in fixed assets
• Changes in such investment
• Depreciation charged
• Carrying amount of PPE

Meaning of Property, Plant and Equipment (PPE)

PPE are tangible assets that:

1. Are held for use in production or supply of goods or services
2. Are expected to be used for more than one accounting period

Examples: Land, building, machinery, vehicles, furniture, office equipment.

Buy Course: CA Intermediate

Recognition of PPE

An item of PPE should be recognized as an asset only if:

1. Future economic benefits are probable
2. Cost can be measured reliably

Otherwise, expense it off.

Cost of PPE

Cost includes:

• Purchase price
• Import duties & non-refundable taxes
• Directly attributable costs:
• Freight
• Installation
• Site preparation
• Professional fees

Excludes:

• Opening of new facility costs
• Advertisement & promotional costs
• Administration & general overheads
• Abnormal wastage
• Interest (unless AS 16 applies)

Read Also: Understanding AS 9 (Revenue Recognition) – CA Intermediate

Self-Constructed Assets

Cost includes:

• Direct material
• Direct labour
• Direct expenses
• Appropriate overheads

Same principles as purchased assets apply.

Subsequent Expenditure

• Capitalise if it increases future economic benefits
• Expense if it only maintains existing performance

Example:

• Major overhaul extending asset life → Capitalise
• Regular repair & maintenance → Expense

Depreciation under AS 10

Depreciation is the systematic allocation of the depreciable amount over useful life.

Depreciable Amount = Cost − Residual Value

Depreciation begins when asset is available for use, not when actually used.

Change in Depreciation Method

Change is allowed only if:

• Required by law, or
• Results in more appropriate presentation

Treated as change in accounting estimate → Adjust prospectively

Revaluation of PPE

• Entire class of assets must be revalued
• Revaluation should be done regularly
• Increase credited to Revaluation Reserve
• Decrease charged to P&L (subject to reserve)

Retirement & Disposal of PPE

On disposal:

• Remove asset & accumulated depreciation
• Profit/Loss = Sale proceeds − Carrying amount
• Recognise in P&L Account

Numerical Illustration

Cost of machinery = ₹10,00,000
Residual value = ₹1,00,000
Useful life = 9 years

Depreciable amount = 9,00,000
Annual depreciation (SLM) = ₹1,00,000

Disclosure Requirements

An enterprise should disclose:

• Gross carrying amount
• Accumulated depreciation
• Depreciation method used
• Useful lives or rates
• Reconciliation of carrying amount

Common Exam Mistakes

• Starting depreciation from date of purchase instead of availability
• Capitalising routine repairs
• Forgetting residual value
• Wrong treatment of revaluation surplus
• Treating change in method as prior period item

Exam Tip

If asked: “Explain cost of PPE as per AS 10”

Write:

1. Definition
2. Components included
3. Components excluded
4. Example

This structure fetches full marks.

Motivational Note

“Fixed assets build businesses, but correct accounting builds trust.” – CA Rohit Sethi