CA Intermediate · Advanced Accounting

AS 10 Property, Plant and Equipment: CA Intermediate Advanced Accounting

AS 10 sets how you recognise, measure, derecognise and disclose property, plant and equipment. To solve a question, first test recognition, then build cost from purchase price plus directly attributable costs, handle special cases like exchange and joint purchase, and finally compute gain or loss on disposal as net proceeds minus carrying amount.

What this chapter covers

AS 10 deals with property, plant and equipment (PPE): tangible items held for use in production or supply of goods or services, for rental to others, or for administrative purposes, and expected to be used for more than one period. The chapter answers four questions. Does the item qualify as PPE? What is its cost? What happens in special acquisitions such as exchange or joint purchase? How do you remove it from the books and what do you disclose?

The chapter is mostly about the cost of an asset. You decide which expenses go into the asset and which go to the statement of profit and loss. Most numerical questions test this single judgement. The remaining questions test the gain or loss on disposal and the treatment of items retired from active use.

This chapter connects to many others in Paper 1. Depreciation (AS 6), borrowing costs (AS 16), government grants (AS 12), foreign exchange (AS 11), impairment (AS 28) and the Schedule III presentation of company financial statements all touch PPE. Learn AS 10 well and those chapters become easier, because the asset's carrying amount is the starting point for each of them.

AS 10 is a high-utility chapter. It gives you short MCQs on definitions, recognition and what to include in cost, and it gives you written questions where you build up a cost statement line by line and earn step marks for each correct inclusion or exclusion. The same skills are used again in depreciation, borrowing costs, grants and company accounts questions, so the effort you put in here pays back across the paper. The rules are limited in number and logical, so careful practice can make this chapter a reliable source of marks.

AS 10 Property, Plant and Equipment: topics in the order to study them

1AS 10 Scope, Definitions and Recognition of PPEStart here because every later rule depends on knowing what counts as PPE and when an item may be recognised.
2Measurement of Cost of PPE and Components of CostThis is the core numerical topic, so study it next while the definitions are fresh, and practise building cost statements.
3Special Cases: Exchange, Joint Purchase and Government GrantsThese are variations on the cost rule, so they make sense only after you are firm on normal cost.
4Retirement, Disposal, Derecognition and DisclosuresStudy this last because it closes the asset's life cycle and uses carrying amount, which you need cost to understand.

How to prepare AS 10 Property, Plant and Equipment

Treat this chapter as a judgement exercise on cost, backed by a few fixed rules. Spend most of your time on questions, not on reading.

Read the definition of PPE and the two recognition criteria: an item is recorded as an asset when it is probable that future economic benefits associated with the item will flow to the enterprise, and the cost of the item can be measured reliably. Write the definition and both criteria from memory until you can do it without looking.
Make a two-column list for cost: items included (purchase price including import duties and non-refundable taxes, after deducting trade discounts and rebates; directly attributable costs; and the initial estimate of the cost of dismantling, removing the item and restoring the site, to the extent it is recognised as a provision under AS 29) and items excluded (administration and general overheads, costs of opening a new facility, costs of introducing a new product, training and similar costs). Also note that spare parts and stand-by equipment are PPE only when you expect to use them for more than one period. Otherwise they are inventory.
Solve at least five cost-statement questions. For each item in the question, write one word beside it: include or exclude. Then total the included items. This habit earns step marks.
Learn the exchange rule: when an asset is acquired in exchange or part exchange for another asset, its cost is the fair market value of the asset acquired or given up, or the net book value of the asset given up, adjusted for any balancing cash payment or receipt. Practise one example using fair market value and one using the net book value of the asset given up.
For joint purchase, practise splitting the total cost in the ratio of fair values or the basis given. Then do government grant questions using the treatment of AS 12 as covered in your material. AS 10 sends you to AS 12 for grants relating to PPE.
Practise disposal questions: gain or loss = net disposal proceeds − carrying amount. Then learn the rule for items retired from active use and held for disposal: they are stated at the lower of their carrying amount and net realisable value, and shown separately in the financial statements. The carrying amount of an item is eliminated from the financial statements on disposal or when no future economic benefits are expected from its use or disposal. Also revise servicing and replacement of parts as per AS 10: the cost of day-to-day servicing is charged to profit and loss, while the cost of replacing a part is added to the carrying amount of the item when the recognition criteria are met (future economic benefits are probable and the cost can be measured reliably), and the carrying amount of the replaced part is eliminated.
Revise the AS 10 disclosures for each class of PPE: the measurement bases used for the gross carrying amount, the depreciation methods, the useful lives or depreciation rates, the gross carrying amount and accumulated depreciation at the start and end of the period, and a reconciliation of the carrying amount at the start and end of the period. Add expenditure on assets in the course of construction and revaluation details where assets are revalued. Finish with a timed set of MCQs on definitions, inclusions and exclusions, since MCQs have no negative marking and you should attempt all of them.

Common mistakes in AS 10 Property, Plant and Equipment

Adding general overheads, training or opening-ceremony costs to the cost of the asset.
Fix: Only costs directly attributable to bringing the asset to its location and working condition are capitalised. Ask whether the cost would have been avoided if you had not bought the asset.
Not deducting trade discounts and rebates from the purchase price.
Fix: Always begin with the invoice price, deduct trade discounts and rebates, and only then add duties and other attributable costs.
Capitalising taxes that can be claimed back, such as recoverable input tax credit.
Fix: Include only non-refundable taxes in cost. Leave out any tax that the entity can recover.
Using the net book value of the asset given up as the cost of the asset acquired in every exchange.
Fix: Cost is the fair market value of the asset acquired or given up, or the net book value of the asset given up, adjusted for any balancing cash payment or receipt. Read the question for the basis it gives, and do not use book value when a fair market value is given.
Computing gain or loss on disposal from original cost instead of carrying amount.
Fix: Bring depreciation up to the date of disposal, find the carrying amount, then subtract it from net disposal proceeds.
Writing disclosure answers as a vague list, or leaving out the reconciliation of carrying amounts.
Fix: Memorise the AS 10 list as headings for each class of PPE: measurement bases, depreciation methods, useful lives or rates, gross carrying amount and accumulated depreciation, and a reconciliation of opening and closing carrying amounts. Add expenditure on assets under construction and revaluation details. Write each as a separate point.

Last-day revision: AS 10 Property, Plant and Equipment

PPE is a tangible item held for production, supply, rental to others or administration, and expected to be used for more than one period.
An item is recorded as PPE when it is probable that future economic benefits associated with it will flow to the enterprise and its cost can be measured reliably.
Spare parts and stand-by equipment are PPE only when expected to be used for more than one period; otherwise they are inventory.
Cost = purchase price including import duties and non-refundable taxes, after deducting trade discounts and rebates + directly attributable costs + the initial estimate of dismantling, removal and site restoration costs, to the extent recognised as a provision under AS 29.
Administration and general overheads, costs of opening a new facility and costs of introducing a new product are not part of cost.
Borrowing costs that qualify are capitalised as per AS 16, not under AS 10.
Exchange or part exchange: cost is the fair market value of the asset acquired or given up, or the net book value of the asset given up, adjusted for any balancing cash payment or receipt.
Joint purchase: divide the total cost among the assets on a reasonable basis, usually relative fair values.
Day-to-day servicing costs are charged to profit and loss. As per AS 10, the cost of replacing a part is added to the carrying amount of the item if the recognition criteria are met, and the carrying amount of the replaced part is eliminated.
Gain or loss on disposal = net disposal proceeds − carrying amount, taken to profit and loss.
Items retired from active use and held for disposal are stated at the lower of carrying amount and net realisable value and shown separately; the carrying amount of an item is eliminated from the financial statements on disposal or when no future economic benefits are expected from it.
For each class of PPE, disclose the measurement bases, depreciation methods, useful lives or rates, gross carrying amount and accumulated depreciation at the start and end of the period, and a reconciliation of opening and closing carrying amounts. Also disclose expenditure on assets under construction and revaluation details.

AS 10 Property, Plant and Equipment practice questions

AS 10 Property, Plant and Equipment in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

AS 10 Property, Plant and Equipment: frequently asked questions

Is AS 10 more important for MCQs or for written answers?

Both. MCQs test definitions and what is included in or excluded from cost. Written answers test full cost statements, exchange and disposal. Prepare both formats, because every paper has 30 marks of MCQs and 70 marks of descriptive questions.

How do I decide whether a cost should be capitalised?

Ask whether the cost is directly attributable to bringing the asset to its location and condition for use. If yes, capitalise it. General overheads, new-facility opening costs and new-product introduction costs are charged to profit and loss.

How do I calculate profit or loss on sale of PPE?

Bring depreciation up to the date of sale and find the carrying amount. Then deduct it from net disposal proceeds. A positive result is a gain and a negative result is a loss. Either goes to the statement of profit and loss.

What should I do when the fair value of the asset in an exchange is not given?

Under AS 10, cost in an exchange is the fair market value of the asset acquired or given up, or the net book value of the asset given up, adjusted for any balancing cash paid or received. Read the question for a fair market value or a stated basis. If none is given, use the net book value of the asset given up.