5.

Asset Based of Accounting Standards

AS 10 - Property, Plant and Equipment

Question 1 (Nov - 2013) (5 Marks)
Amna Ltd. contracted with a supplier to purchase a specific machinery to be installed in
Department A in two months’ time. Special foundations were required for the plant, which
were to be prepared within this supply lead time. The cost of site preparation and laying
foundations were Rs.47,290. These activities were supervised by a technician during the entire
period, who is employed for this purpose of Rs.15,000 per month. The Technician's services
were given to Department A by Department B, which billed the services at Rs.16,500 per month
after adding 10% profit margin.
The machine was purchased at Rs.52,78,000. Sales Tax was charged at 4% on the invoice.
Rs.18,590 transportation charges were incurred to bring the machine to the factory. An
Architect was engaged at a fee of Rs.10,000 to supervise machinery installation at the factory
premises. Also, payment under the invoice was due in 3 months. However, the Company made
the payment in 2nd month. The company operates on Bank Overdraft @ 11 %. Ascertain the
amount at which the asset should be capitalized under AS 10.

Question 2 (May - 2014) (5 Marks)

On 01.04.2010 a machine was acquired at Rs.4,00,000. The machine was expected to have a
useful life of 10 years. The residual value was estimated at 10% of the original cost. At the end
of the 3rd year, an attachment was made to the machine at a cost of Rs.1,80,000 to enhance its
capacity. The attachment was expected to have a useful life of 10 years and zero terminal value.
During the same time the original machine was revalued upwards by Rs.90,000 and remaining
useful life was reassessed at 9 years and residual value was reassessed at NIL.
Find depreciation for the year, if
[1] attachment retains its separate identity,
[2] attachment becomes integral part of the machine.

AS - 10 Property, Plant and Equipment By CA Sanket Shah

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Question 3 (Nov - 2014) (5 Marks)
In the books of Optic Fiber Ltd., plant and machinery stood at Rs.6,32,000 On 1.4.2013.
However, on scrutiny it was found that machinery worth Rs.1,20,000 was included in the
purchases on 1.6.2013. On 30.6.2013 the company disposed a machine having book value of
Rs.1,89,000 on 1.4.2013 at Rs.1,75,000 in part exchange of a new machine costing
Rs.2,56,000. The company charges depreciation @ 20% WDV on plant and machinery.
You are required to calculate:
[1] Depreciation to be charged to P/L
[2] Book value of Plant and Machinery A/c as on 31.3.2014
[3] Loss on exchange of machinery.

Question 4 (Nov - 2014) (3 Marks)

From the following information state, the amount to be capitalized as per AS 10. Give the
explanations for your answers.
Rs.5 lakhs as routine repairs and Rs.1 lakh on partial replacement of a part of a machine.
Rs.10 lakhs on replacement of part of a machinery which will improve the efficiency of a
machine.

Question 5 (May - 2015) (4 Marks)

Versatile Limited purchased Machinery for Rs.4,80,000 (inclusive of GST of Rs.40,000). Input
Tax credit is available for the GST paid. The Company incurred the following other expenses
for installation.

Particulars Rs.
Cost of preparation of site for installation 21,000
Total labour charges (200 out of the total 600 man hours worked, were 66,000
spent for installation of the Machinery)
Spare parts and tools consumed in installation 6,000
Total salary of supervisor (time spent for installation was 25% of the total 24,000
time worked)
Total administrative expenses (1/10 relates to the plant installation) 32,000
Test run and experimental production expenses 23,000
Consultancy charges to architect for plant set up 9,000
Depreciation on assets used for the installation 12,000

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The Machine was ready for use on 15th January but was used from 1st February. Due to this
delay further costs Rs.19,000 were incurred. Calculate the value at which the plant should be
capitalized.

Question 6 (Nov - 2015) (5 Marks)

A machinery with a useful life of 6 years was purchased on 1st April, 2012 for Rs.1,50,000.
Depreciation was provided on straight line method for first three years considering a residual
value of 10% of cost.
In the beginning of fourth year the company reassessed the remaining useful life of the
machinery at 4 years and residual value was estimated at 5% of original cost.
The accountant recalculated the revised depreciation historically and charged the difference to
profit and loss account. You are required to comment on the treatment by accountant and
calculate the depreciation to be charged for the fourth year.

Question 7 (Nov - 2016) (5 Marks)

Hema Ltd. purchased a machinery on 1.04.2008 for Rs.15,00,000 The company charged
straight line depreciation based on 15 years working life estimate and residual value
Rs.3,00,000. At the beginning of the 4th year the company by way of systematic evaluation
revalued the machinery upward by 20% of net book value as on date and also re-estimated the
useful life as 7 years and scrap value as nil. The increase in net book value was credited directly
to revaluation reserves. Depreciation (on SLM basis) later on was charged to Profit & Loss
Account. At the beginning of 8 years the company decided to dispose of the machinery and
estimated the realizable value to Rs.2,00,000.
You are required to ascertain the amount to be charged to Profit & Loss Account at the
beginning of 8th year with reference to AS-10.

Question 8 (Nov - 2017) (5 Marks)

ABC Ltd. is installing a new plant at its production facility. It provides you the following
information:
Rs.
Cost of the plant (cost as per supplier's invoice) 31,25,000
Estimated dismantling costs to be incurred after 5 years 2,50,000
Initial Operating losses before commercial production 3,75,000
Initial delivery and handling costs 1,85,000
Cost of site preparation 4,50,000
Consultants used for advice on the acquisition of the plant 6,50,000
Please advise ABC Ltd. on the costs that can be capitalised for plant in accordance with AS 10:
Property, Plant and Equipment.
AS - 10 Property, Plant and Equipment By CA Sanket Shah
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Question 9 (Nov - 2018) (5 Marks)
Neon Enterprise operates a major chain of restaurants located in different cities. The company
has acquired a new restaurant located at Chandigarh. The new restaurant requires significant
renovation expenditure Management expects that the renovations will last for 3 months during
which the restaurant-will be closed.
Management has prepared the following budget for this period -Salaries of the staff engaged
in preparation of restaurant before its penning. Rs.,7,50,000
Construction and remodelling cost of restaurant Rs.30,00,000
Explain the treatment of these expenditures as per the provisions of AS 10 "Property, Plant and
Equipment".

Question 10 (Nov - 2020) (5 Marks)

Answer the following question:
A Ltd. had following assets. Calculate depreciation for the year ending 31st March, 2020 for
each asset as per AS 10 (Revised).
[1] Machinery purchased for Rs.10 lakhs on 1st April, 2015 and residual value after useful life
of 5 years, based on 2015 prices is Rs.10 lakhs
[2] Land for Rs.50 lakhs.
[3] A Machinery is constructed for Rs.5,00,000 for its own use (useful life is 10 years).
Construction is completed on 1st April, 2019, but the company does not begin using the
machine until 31st March, 2020.
[4] Machinery purchased on 1st April, 2017 for Rs.50,000 with useful life of 5 years and
residual value is NIL. On 1st April, 2019, management decided to use this asset for further
2 years only.

Question 11 (July - 2021) (5 Marks)

Answer the following questions:
[1] A Limited has contracted with a supplier to purchase machinery which is to be installed at
its new plant in four months' time. Special foundations were required for the machinery
which were to be prepared within this supply lead time'. The cost of the site preparation and
laying foundations were Rs.2,10,000. These activities were supervised by an Architect
during the entire period, who is employed for this purpose at a salary of Rs.35,000 per
month. The machinery was purchased for Rs.1,27,50,000 and a sum of Rs.2,12,500 was
incurred towards transportation charges to bring the machinery to the plant site. An
Engineer was appointed at a fees of Rs.37,500 to supervise the installation of the machinery
at the plant site. You are required to ascertain the amount at which the machinery should
be capitalized in the books of A Limited.
[2] B Limited, which operates a major chain of retail stores, has acquired a new store location.
The new location requires substantial renovation expenditure. Management expects that the
AS - 10 Property, Plant and Equipment By CA Sanket Shah
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 renovation will last for 4 months during which the store will be closed. Management has
prepared the budget for this period including expenditure related to construction and re-
modelling costs, salary of staff who shall be preparing the store before its opening and
related utilities cost. How would such expenditure be treated in the books of B Limited?

Question 12 (May - 2022) (5 Marks)

[1] XYZ Limited provided you the following information for the year ended 31 March, 2022:
st

The carrying amount of a property at the end of the year amounted to Rs.2,16,000
(cost/value Rs.2,50,000 and accumulated depreciation Rs.34,000). On this date the
property was revalued and was deemed to have a fair value of Rs.1,90,000. The balance on
the revaluation surplus relating to a previous revaluation gain for this property was
Rs.20,000.
You are required to calculate the revaluation loss as per AS-10 (Revised) and give its
treatment in the books of accounts.
[2] An asset that originally cost Rs.76,000 and had accumulated depreciation of Rs.62,000 was
disposed of during the year for Rs.4,000 cash.
You are required to explain how the disposal should be accounted for in the financial
statements as per AS-10 (Revised).

Question 13 (May - 2023) (5 Marks)

Answer the following question:
In the books of Topmaker Limited, carrying amount of Plant and Machinery as on 1st April,
2022 is Rs.56,30,000.
On scrutiny, it was found that a purchase of Machinery worth Rs.21,12,000 was included in
the purchase of goods on 1st June, 2022.
On 30th June, 2022 the company disposed a Machine having book value of Rs.9,60,000 (as on
1st April, 2022) for Rs.8,25,000 in part exchange of a new machine costing Rs.15,65,000.
The company charges depreciation @ 10% p.a. on written down value method on Plant and
Machinery.
You are required to compute:
[1] Depreciation to be charged to Profit & Loss Account;
[2] Book value of Plant & Machinery as on 31st March, 2023; and
[3] Profit/Loss on exchange of Plant & Machinery.

AS - 10 Property, Plant and Equipment By CA Sanket Shah

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