2. Scope [Para 2 5]
1. Applicability: AS10 PPE should be applied in accounting for PPE except when another AS requires or permits a
different accounting treatment. [Example: AS19, Leases, requires recognition of leased PPE based on the transfer of
risks and rewards. Recognition is based on AS19, but other aspects for these Assets, including Depreciation, are
prescribed by AS10 PPE.]
2. NonApplicable Assets:
Items to which AS10 PPE not applicable Remarks / Exceptions: AS10 PPE applies to
(a) Biological Assets related to Agricultural Activity. Bearer Plants, but not to Produce on Bearer Plants.
(b) Wasting Assets including Mineral Rights, PPE used to develop or maintain Biological or
Expenditure on the exploration for and extraction of Wasting Assets.
Minerals, Oil, Natural Gas and similar Non Investment Property, as defined in AS13. [to be
Regenerative Resources. accounted only as per Cost Model of AS10 PPE]
3. Definitions [Para 6]
Term Definition
1. Tangible Items that are held for
(a) Use in the production or supply of goods or services,
(b) Rental to others, or and
Property, Plant and
(c) Administrative Purposes, (See meaning below)
Equipment (PPE)
2. Tangible Items that are expected to be used more than 12 Months.
Note: Items such as Spare Parts, StandBy & Servicing Equipment are treated as PPE, if they meet
the definition above. Otherwise, they are treated as Inventory. [Para 8]
1. Meaning: This term has been used in wider sense to include all business purposes other than
Administrative
(a) production or supply of Goods or Services, or (b) for rental for others.
Purposes
2. Examples of Admin Purposes: (a) Selling and Distribution, (b) Finance and Accounting,
[Para 11]
(c)Personnel & Other Functions, (d) Safety or Environmental Reasons, etc.
Management of the biological transformation and harvest of Biological Assets for
(a) Sale, or
Agricultural Activity
(b) Conversion into Agricultural Produce, or
(c) Conversion into additional Biological Assets.
Agricultural Produce Harvested Product of Biological Assets of the Enterprise.
Living Animal or Plant. [Note: Livestock which meets the definition of PPE is covered by AS10 PPE,
Biological Asset
till the time of issue of AS on Agriculture.]
Amount at which an Asset is recognised after deducting any Accumulated Depreciation and
Carrying Amount
Accumulated Impairment Losses.
1. Amount of Cash / Cash Equivalents paid, or to acquire an Asset at the time of its
Cost 2. Fair Value of the other consideration given Acquisition or Construction, or
3. Amount attributed to that Asset when initially recognised as per other AS.
Depreciable Amount Cost of an Asset, or other Amount substituted for Cost, less its Residual Value.[Para 55]
Depreciation Systematic Allocation of the Depreciable Amount of an Asset over its Useful Life.
Enterprise Specific Present Value of Cash Flows an Enterprise expects to arise from the continuing use of an Asset &from
Value its disposal at the end of its useful life or expects to incur when settling a liability.
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Term Definition
Amount for which an Asset could be exchanged between knowledgeable, willing parties in an Arms
Fair Value
Length Transaction.
Gross Carrying Cost or other amount substituted for the Cost in the books of account, without making any
Amount deduction for Accumulated Depreciation and Accumulated Impairment Losses.
Impairment Loss Amount by which the Carrying Amount of an Asset exceeds its Recoverable Amount.
Recoverable Amount Higher of an Assets Net Selling Price and its Value In Use.
If the Asset were already of the age and in the condition expected at the end of its useful life, RV
Residual Value (RV) =Estimated Amount that an Enterprise would currently obtain from disposal of Asset Less
Estimated Costs of disposal.
1. Period over which an Asset is expected to be available for use by an Enterprise, or
2. Number of Production or similar units expected to be obtained from the Asset by an Enterprise.
Note: Useful Life is defined in terms of its expected utility to the Enterprise. Enterprises Policy may
involve the disposal of assets after
Useful Life
(a) Specified time, or
(b) Consumption of a specified proportion of the future economic benefits embodied in it.
So, Useful Life may be shorter than its Economic Life. The estimation of the Useful Life is a matter
of judgement based on the experience of the Enterprise with similar assets.[Para 59]
Illustration: State whether the following are Bearer Plants under AS10 PPE
Item Y/N Reasoning
Trees grown for use as Lumber No They are Plants cultivated to be harvested as Agricultural Produce.
Trees that are cultivated both for their They are Plants cultivated to produce Agricultural Produce and the Entity
No
Fruit and their Lumber will also harvest and sell the Plant as Agricultural Produce.
Maize and Wheat No They are Annual Crops.
Plants no longer used to bear Produce Incidental Scrap Sales would not prevent the Plant from satisfying the
Yes
were sold for use as Firewood definition of a Bearer Plant.
5. Recognition Principles
Aspect Description
Cost of an Item of PPE should be recognized, if and only if
1. it is probable that future economic benefits associated with the Item will flow to the
Recognition Criteria Enterprise, and
[Para 7] 2. Cost of the Item can be measured reliably.
Note: An Enterprise may decide to expense an item which could otherwise have been included
as PPE, because the amount of the expenditure is not material.
1. Judgement is required in applying the recognition criteria to specific circumstances of an
Enterprise. There is no specific prescription of Unit of Measure for Recognition in the AS.
Unit of Measure
2. Example for Unit of Measure: (a) a Project of Construction of a Manufacturing Plant
[Para 9]
rather than Individual Assets comprising the Project, during its construction period,
(b)Moulds, Tools and Dies, are aggregated to apply the PPE Criteria, than individually.
Time of Costs [Para An Enterprise evaluates under this recognition principle all its Costs on PPE at the time they
10] are incurred. These costs include (a) Initial Costs, and (b) Subsequent Costs.
1. At Recognition [Para 16]: An item of PPE that qualifies for recognition as an asset should
be measured at its Cost.
Measurement 2. After Recognition [Para 32]: Enterprise should choose any of the following Model as its
Accounting Policy and should apply that policy to the entire class of PPE (a) Cost Model
[Para 33], or (b) Revaluation Model [Para 34].
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AS 10 Property, Plant and Equipment
Illustration: State whether the following are treated as PPE under AS10 PPE
Item Y/N Reasoning
Chemical Manufacturer may install new Chemical Administrative Purposes includes Safety or Environmental Reasons
Handling Processes to comply with also. So, these Plant Enhancements are recognised as an Asset
Y
environmental requirements for the production because without them the Enterprise is unable to manufacture and
and storage of dangerous chemicals. [Para 11] sell Chemicals.
Labour and Consumables, and Cost of small Parts, for daytoday
Daytoday servicing Costs of PPE [Para 12] N servicing are treated as Repairs & Maintenance of PPE. Hence,
they are recognized as Expense in P&L.
Frequent Replacement of Parts of PPE e.g.
[Para 13]
1. Furnace may require relining after a
specified number of hours of use. Costs of new replacing parts are included in the Carrying
2. Replacement of Aircraft Interiors such as Amount of an item of PPE, if the recognition criteria of Para 7
Seats and Galleys. Y are met.
3. Replacement of Major Parts of Conveyor Cost of the parts that are replaced are derecognized as the
System, such as, Conveyor Belts, Wire criteria in AS10 PPE. (See Note below)
Ropes, etc.
4. Replacing the interior walls of a building,
or to make a nonrecurring replacement.
When each major inspection is performed, its cost is
Frequent / regular major inspections for faults recognised in the Carrying Amount as a replacement if the
as a condition for continuing operation of PPE, Recognition Criteria of Para 7 are satisfied.
Y
regardless of whether parts of the item are Any remaining Carrying Amount of the cost of the previous
replaced, e.g. Aircraft [Para 14] inspection (as distinct from physical parts) is derecognised.
(See Note below)
Note: Derecognition of the Carrying Amount occurs regardless of whether the cost of the previous part / inspection was
identified in the transaction in which the item was acquired or constructed. If it is not practicable for an Enterprise to
determine the Carrying Amount of the replaced part/ inspection, it may use the cost of the replacement or the estimated
cost of a future similar inspection as an indication of what the cost of the replaced part/ existing inspection component was
when the item was acquired or constructed.
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Aspect Description
1. Recognition of Costs in the Carrying Amount of an item of PPE ceases when the item is in the location
and condition necessary for it to be capable of operating in the manner intended by Management.
2. Costs incurred in using or redeploying an item are not included in the Carrying Amount. So, the
Cessation
following costs are not included in the Carrying Amount of an Item of PPE
of Cost
(a) costs incurred while an item capable of operating in the manner intended by management has yet
Recognition
to be brought into use or is operated at less than full capacity,
[Para 21]
(b) initial operating losses, such as those incurred while demand for the output of an item builds up,
and
(c) costs of relocating or reorganising part or all of the operations of an enterprise.
1. Incidental Operations are not necessary to bring an item to the location and condition necessary for it
to be capable of operating in the manner intended by Management.
Incidental
2. Incidental Operations may occur before or during Construction / Development, e.g. Income earned
Operations
through using a Building Site as a Car Park until construction starts.
[Para 22]
3. Such items are recognized in Statement of P&L and included in their respective classifications of
Income and Expense. They are not included as Cost of PPE.
Situation Cost Recognition
SelfConstructed Asset Same Principles as for an Acquired Asset
Self Same Principles as the cost of constructing an Asset for sale
Enterprise makes similar Assets for sale in
Constructed as per AS2. (Note: Internal Profits, Cost of Abnormal
the normal course of business
Asset [Para Amounts of Wasted Material, Labour, etc. are excluded.)
23 24] Recognition of Interest in the Carrying
Same Principles as per AS16, Borrowing Costs
Amount of a SelfConstructed Item of PPE
Bearer Plants Same Principles as for SelfConstructed Asset.
Note 1: Meaning of Commercial Substance [Para 27]: An Enterprise determines whether an exchange transaction has
commercial substance by considering the extent to which its Future Cash Flows are expected to change as a result of the
transaction. An exchange transaction has commercial substance if
(a) Configuration (Risk, Timing and Amount) of the Cash Flows of the asset received &transferred are different, or
(b) EnterpriseSpecific Value of the portion of the operations affected by the transaction changes as a result of the
exchange, and
(c) Difference in (a) or (b) is significant relative to the Fair Value of the Assets exchanged.
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AS 10 Property, Plant and Equipment
For the purpose of determining whether an exchange transaction has commercial substance, the EnterpriseSpecific Value
of the portion of operations of the enterprise affected by the transaction should reflect PostTax Cash Flows. In certain
cases, the result of these analyses may be clear without an Enterprise having to perform detailed calculations.
Note 2: Reliable Measurement of Fair Value [Para 28]: The Fair Value of an Asset is reliably measurable if
(a) Variability in the range of reasonable Fair Value Measurements is not significant for that Asset, or
(b) Probabilities of the various estimates within the range can be reasonably assessed and used when measuring Fair
Value.
9. Principles of Revaluation
2. Frequency [Para 37]: Revaluations should 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 B/s date. Frequency of
Revaluations depends upon the changes in Fair Values of the items of PPE being revalued.
Changes in Fair Value of Items of PPE is Frequency of Revaluations
Significant and volatile Annual Revaluation
Only Insignificant Once in every 3 or 5Years
Note: If Fair Value & Carrying Amount of Revalued Asset is materially different, a further revaluation is required.
3. Revaluation of Entire Class [Para 39 41]: If an Item of PPE is revalued, the entire class of PPE to which that
asset belongs should be revalued. A class of PPE is a grouping of assets of a similar nature and use in operations of an
Enterprise. Examples of separate classes are
(a) Land, (d) Ships, (g) Furniture and Fixtures,
(b) Land and Buildings, (e) Aircraft, (h) Office Equipment, and
(c) Machinery, (f) Motor Vehicles, (i) Bearer Plants.
Note: A class of assets may be revalued on a rolling basis provided revaluation of the class of assets is completed
within a short period and provided the revaluations are kept up to date.
1. Adjustment in Carrying Amount [Para 38]: When an item of PPE is revalued, its Carrying Amount is adjusted to
the Revalued Amount. At the date of Revaluation, the asset is treated in one of the following ways
(a) Gross Carrying Amount is adjusted in a manner that is consistent with the revaluation of the Carrying Amount
of the Asset. For example, the Gross Carrying Amount may be restated by reference to observable market
data or it may be restated proportionately to the change in the Carrying Amount. The Accumulated
Depreciation at the date of the revaluation is adjusted to equal the difference between the Gross Carrying
Amount and the Carrying Amount of the asset after taking into account Accumulated Impairment Losses, or
(b) Accumulated Depreciation is eliminated against the Gross Carrying Amount.
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2. Transfer Entry [Para 42 43]:Amount of adjustment of Accumulated Depreciation forms part of the increase or
decrease in Carrying Amount that is accounted as under
Situation Treatment
(a) Upward Revaluation for First Time Credited to Owners Interests under the Heading Revaluation Surplus
Credit to P&L to the extent of Reversal of previous downward
(b) Upward Revaluation of an Item
revaluation.
previously revalued downwards
Credit the remaining portion to Revaluation Surplus.
(c) Downward Revaluation for First Time Charged to the Statement of Profit and Loss (P&L)
Debit to Revaluation Surplus to the extent of Reversal of previous
(d) Downward Revaluation of an Item
upward revaluation.
previously revalued upwards
Debit the remaining portion to P&L.
11. Depreciation
1. Basic Principle [Para 45]: Each part of an item of PPE with a cost that is significant in relation to the total cost of the
item should be depreciated separately.
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AS 10 Property, Plant and Equipment
5. Review & Revision in Residual Value and Useful Life [Para 53]: The following should be reviewed at least at
each Fin.Year end, and any changes should be accounted for as a Change in an Accounting Estimate as per AS5
Review & Revision in Change in an Accounting Estimate, if Treatment
Residual Value and Useful
Expectations differ from previous estimates. Depreciable Amount is adjusted
Life[Para 53]
There has been a significant change in the expected Depreciation Method should be
Depreciation Method
pattern of consumption of the future economic changed to reflect the changed
applied [Para 63]
benefits embodied in the Asset pattern.
(c) Selection: Enterprise selects the method that most closely reflects the expected pattern of consumption of the
future economic benefits embodied in the asset and such method is applied consistently from period to period.
12. Changes in Existing Decommissioning, Restoration and Other Liabilities [Para 6670]
1. Situation: Cost of PPE may undergo changes subsequent to its acquisition /construction due to
(a) Changes in Liabilities,
(b) Price Adjustments,
and included in the cost of the Asset as per
(c) Changes in Duties,
Para 16
(d) Changes in Initial Estimates of amounts provided for
dismantling, removing, restoration and similar factors
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2. Treatment under Cost Model: If the related asset is measured using the Cost Model
Situation Treatment in the current period
Increase in the Liability Added to the cost of the related Asset.
If such Increase in the Liability is an indication that the Added to the Cost. Also, the Enterprise should test for
New Carrying Amount may not be fully recoverable Impairment by estimating its Recoverable Amount and
account for Impairment Loss, as per AS28.
Decrease in Liability not exceeding its Carrying Amount Deducted from the cost of the related Asset.
Decrease in the Liability exceeding its Carrying Amount Upto Cost: Deducted from Cost of the related Asset.
Excess: Recognised immediately in Statement of P&L
3. Treatment under Revaluation Model: If the related asset is measured using the Revaluation Model
Situation Previously Revalued Treatment
Decrease in Liability No Credited directly to Revaluation Surplus in Owners Interest.
Downwards, i.e.
To the extent of Revaluation Deficit: Recognised in P&L.
Decrease in Liability Recognised in
Excess: Credited to Revaluation Surplus in Owners Interest.
Statement of P&L
Increase in Liability No Recognised in the Statement of Profit and Loss.
Upwards, i.e. Credited To the extent of Revaluation Surplus: Debited directly to
Increase in Liability to Revaluation Surplus Revaluation Surplus in Owners Interest.
in Owners Interest. Excess: Recognised in the Statement of Profit and Loss.
Decrease in Liability
Such Excess should be recognized immediately in the Statement of
exceeding Carrying Yes / No
Profit and Loss
Amt under Cost Model
Note: 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 B/s date. Any
such Revaluation should be taken into account in determining the amounts to be taken to the Statement of Profit and
Loss and the Owners Interest. If a Revaluation is necessary, all Assets of that class should be revalued.
4. Timepoint for Adjustment [Para 69]: The Adjusted Depreciable Amount of the asset is depreciated over its useful
life. So, once the related asset has reached the end of its useful life, all subsequent changes in the liability should be
recognised in the Statement of P&L as they occur. This applies under both Cost Model and Revaluation Model.
Items Treatment
Impairment Losses of items of PPE Recognised as per AS28
Derecognition of items of PPE retired or disposed of Determined as per AS10 PPE
Consideration Receivable on disposal &Date of disposal As per AS9 for recognising Revenue from Sale of Goods
Retirements, i.e. Assets retired from active use and held Stated at the lower of their Carrying Amount and NRV. Any write
for disposal down should be recognized immediately in Statement of P&L.
Related Claims / Compensation from Third Parties for Included in determining Profit or Loss when it becomes
items of PPE that were impaired, lost or given up receivable
Cost of items of PPE restored, purchased or constructed Determined as per AS10 PPE
as Replacements
Note 1: All the above are separate economic events and accounted for separately even if it relates to a single Asset.
Note 2: If an enterprise recognises in the Carrying Amount of an item of PPE 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 enterprise 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.
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AS 10 Property, Plant and Equipment
2. Treatment of Gain / Loss: Gain= Net Disposal Proceeds Less Carrying Amount. (If Negative, Loss)
Situation Treatment
Enterprise routinely sells items of PPE At the time of transfer to Inventories: Transfer at Carrying Amount.
in the course of its ordinary activities At the time of Sale: Sale Proceeds recognised in Revenue as per AS 9.
Disposal by Sale and Leaseback As per AS 19, Leases
In General Cases other than above Gain / Loss on derecognition should be included in the Statement of Profit
and Loss. It should not be classified as Revenue as per AS9.
15. Disclosure Requirements [Para 81 85]
5. Disclosures under Para 85: If items of PPE are stated at revalued amounts, the following should be disclosed
(a) Effective date of the revaluation,
(b) Whether an Independent Valuer was involved,
(c) Methods and significant assumptions applied in estimating fair values of the items,
(d) Extent to which Fair Values of the items were determined directly by reference to observable prices in an active
market or recent market transactions on arms length terms or were estimated using other valuation techniques,&
(e) Revaluation Surplus, indicating the change for the period and any restrictions on the distribution of the balance to
Shareholders.
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6. Disclosures under Para 86: For Impaired PPE, Disclosures are required under AS28, in addition to Para 81 above.
7. Optional Disclosures under Para 87: An Enterprise is encouraged to disclose the following:
(a) Carrying Amount of temporarily idle PPE,
(b) Gross Carrying Amount of any fully depreciated PPE that is still in use,
(c) For each revalued class of PPE, the Carrying Amount that would have been recognised had the assets been carried
under the Cost Model,
(d) Carrying Amount of PPE retired from active use and not held for disposal.
Situation Treatment
Entity has in past recognized an Expenditure in P&L which is It may be included. However, effect of such retrospective
eligible to be included as a part of the cost application, should be recognised Net of Tax in Revenue
Reserves.
On the date of this Standard becoming mandatory, the They should be capitalised at their respective Carrying
Spare Parts, which were being treated as Inventory and are Amounts and depreciated over their remaining useful lives
now required to be capitalized. prospectively as per this Standard.
On the date of this Standard becoming mandatory, an It should adjust the amount outstanding in the Revaluation
Enterprise does not adopt the Revaluation Model as its Reserve against the Carrying Amount of that item. However,
Accounting Policy but the Carrying Amount of item(s) of PPE the Carrying Amount of that item should never be less than
reflects any Previous Revaluation Residual Value. Any excess of the amount outstanding as
Revaluation Reserve over the Carrying Amount of that item
should be adjusted in Revenue Reserves.
Note: Prospective Application: The following provisions should be applied prospectively only to transactions entered into
after this Standard becomes mandatory
1. Para 2628 regarding the Initial Measurement of an item of PPE acquired in an exchange of assets transaction,
2. Para 32, 34 44 regarding the Revaluation Model.
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