Advanced Accounting · AS 10 Property, Plant and Equipment

AS 10 Special Cases: Exchange, Joint Purchase and Government Grants

Updated 5 October 2026

These cases fix the cost of PPE not bought simply for cash. An exchanged asset is recorded at the fair value of the consideration given, adjusted for cash. For similar assets of similar value, the carrying amount given up may be used, with no gain or loss. A lump sum price is split by fair values.

Understand Special Cases: Exchange, Joint Purchase and Government Grants

Normally a PPE item is recorded at its purchase price plus costs needed to bring it to working condition. Some deals are not that simple. You may swap one asset for another, buy several assets for one price, receive a grant, or replace a part of an asset. AS 10 (Revised) gives a rule for each.

Exchange. When PPE is acquired in exchange (or part exchange) for another asset, its cost is determined by the fair value of the consideration given, that is, the asset given up, adjusted for any balancing cash paid or received. If the exchange is for a similar asset of similar value, the new asset's cost may be taken as the carrying amount of the asset given up, adjusted for any balancing cash, and no gain or loss is recognised. In other exchanges, the profit or loss is the difference between the cost of the new asset (net of cash paid) and the carrying amount of the asset given up. The commercial substance test is an Ind AS 16 idea, not part of AS 10, so do not apply it in an AS 10 answer. When shares or other securities are issued to buy an asset, the cost is the fair value of the asset, or the fair value of the securities issued, whichever is more clearly evident.

Joint (lump-sum) purchase. If you buy several assets for one price, the total price is allocated to each asset in the ratio of its fair value. You cannot just divide equally. Land and building bought together must be split, because land is not depreciated but the building is.

Government grants. AS 10 does not set its own grant rules. It says that where PPE is acquired with a government grant, you follow the grant standard (AS 12). Under AS 12, a grant related to a specific depreciable asset can be deducted from the asset's cost or shown as deferred income. If deducted, depreciation is on the reduced cost. A grant in the nature of promoters' contribution is not treated this way. It is credited to capital reserve.

Revaluation and replacement of parts. When you revalue, you revalue the whole class of assets to which the item belongs, not a single item selected at will. Revaluation must be done on a regular basis so the carrying amount does not differ materially from fair value. An increase is credited to revaluation reserve, except to the extent it reverses a decrease on the same asset earlier charged to profit and loss. To that extent, it is credited to profit and loss. A decrease is charged to profit and loss, except to the extent of any credit balance in the revaluation reserve for that asset. To that extent, it is charged against the reserve. Spares and the cost of a replacement part are capitalised when the recognition criteria are met, and the replaced part is derecognised. Expenditure that only maintains the original standard of performance is charged to profit and loss.

Key rules to remember

Cost of asset acquired in exchange: Cost = Fair value of consideration given (the asset given up) ± cash paid/received. For similar assets of similar value: Cost = Carrying amount of asset given up ± cash paid/received; Add costs to bring the asset to working condition. Use the carrying amount of the old asset as cost only for an exchange of similar assets of similar value, where no gain or loss arises.
Asset acquired for shares: Cost = Fair value of asset acquired or fair value of shares issued, whichever is more clearly evident; Do not use the face value of shares unless it equals fair value.
Allocation of lump-sum price: Cost of asset A = Total price × Fair value of A ÷ Total fair value of all assets; Add directly attributable costs, also split in the same ratio unless they relate to one asset.
Gain or loss on exchange: Profit/(Loss) = (Cost of new asset − cash paid) − carrying amount of asset given up; If the new asset is recorded at the fair value of the consideration given, this equals fair value given up − its carrying amount. If similar assets of similar value are exchanged and the new asset is recorded at the carrying amount of the old one, it is nil. Follow the basis stated in the question. If cash is received, add it to the first bracket instead of deducting.
Revaluation surplus: Surplus = Revalued amount − Carrying amount; Credit to revaluation reserve, except to the extent it reverses an earlier decrease on the same asset charged to profit and loss, which is credited to profit and loss. A deficit is charged to profit and loss, except to the extent of any credit balance in the revaluation reserve for that asset, against which it is charged.
Replacement of a part: New carrying amount = Old carrying amount + Cost of new part − Carrying amount of old part; Capitalise the new part when recognition criteria are met and derecognise the old part. Use the old part's book value if the question gives it.

How to solve Special Cases: Exchange, Joint Purchase and Government Grants questions

Identify which special case the question tests, then apply the matching rule in order. Show the basis of every figure.

1Read the question and tag the case: exchange, shares issued, lump-sum purchase, grant, revaluation, or replacement of a part.
2For exchange, use the fair value of the consideration given (the asset given up). If similar assets of similar value are exchanged, the carrying amount of the old asset may be used as the cost, with no gain or loss.
3Adjust for cash paid or received. Check what each given figure represents.
4For a lump-sum purchase, add the fair values, find each ratio, and multiply by the total price. Add other costs and split them sensibly.
5For grants, decide the method (deduct from cost or deferred income) as stated, then compute depreciation on the right base. A promoters' contribution goes to capital reserve.
6For revaluation, apply it to the whole class, compute surplus or deficit, and pass the entry to revaluation reserve or profit and loss, allowing for earlier reversals.
7For a replaced part, capitalise the new cost if recognition criteria are met, derecognise the old part's carrying amount, and recognise the resulting loss (or gain) in profit and loss.
8Write the journal entry or the closing carrying amount, and state the basis in one line.

Quickest way: Rule-first shortcut

When to use it: Use this for both MCQs and short written answers when time is tight.

For MCQs, match the keyword: exchange means fair value of the consideration given (carrying amount only for similar assets of similar value), lump sum means fair value ratio, grant means AS 12, revaluation means whole class.
Eliminate options that use face value or an equal split. For an exchange, eliminate the carrying amount of the old asset as cost unless the question says similar assets of similar value are exchanged.
Do the ratio mentally: total price × fair value ÷ total fair value.
In written answers, start with one line naming the rule, then show the working in a small list, then the journal entry.
Step marks usually come from the correct basis, the correct computation and the entry, so write all three even if the sum is short.

Common mistakes in Special Cases: Exchange, Joint Purchase and Government Grants

Using the carrying amount of the old asset as the cost of the new asset in every exchange.
Students think cost means what you gave up in the books.
Fix: Cost is normally based on the fair value of the consideration given. Use the carrying amount as the cost only when similar assets of similar value are exchanged, and then no gain or loss arises. In other exchanges, the carrying amount is used only to find the profit or loss.
Splitting a lump-sum price equally or by book value.
Equal division feels fair and quick.
Fix: Always allocate in the ratio of fair values of the assets.
Depreciating land bought with a building.
The combined price is treated as one asset.
Fix: Separate land from building. Depreciate only the building.
Revaluing only one asset in a class.
The question mentions one asset, so students revalue only that one.
Fix: State that the whole class must be revalued together, unless the question limits it.
Not removing the carrying amount of the replaced part.
Students add the new part's cost and stop.
Fix: Derecognise the old part, recognise the resulting loss (or gain) in profit and loss, and then compute the new carrying amount.
Ignoring the grant when computing depreciation.
Students depreciate on the full price.
Fix: If the grant is deducted from cost, depreciate on the net cost.

Worked examples

Example 1

X Ltd bought land, building and machinery for a lump sum of ₹81,00,000. Fair values are: land ₹30,00,000, building ₹40,00,000 and machinery ₹20,00,000. Legal and registration costs of ₹1,80,000 relate to the whole purchase. Find the cost of each asset.

Show the solution

Total fair value = ₹30,00,000 + ₹40,00,000 + ₹20,00,000 = ₹90,00,000.
The price (₹81,00,000) is different from total fair value, so allocate the price in the ratio of fair values: 30 : 40 : 20, that is 3 : 4 : 2 (9 parts).
One part of the price = ₹81,00,000 ÷ 9 = ₹9,00,000. Price share: land 3 × ₹9,00,000 = ₹27,00,000; building 4 × ₹9,00,000 = ₹36,00,000; machinery 2 × ₹9,00,000 = ₹18,00,000. Check: total ₹81,00,000.
Other costs ₹1,80,000 in the ratio 3 : 4 : 2 (one part = ₹20,000): land ₹60,000, building ₹80,000, machinery ₹40,000.
Cost: land ₹27,60,000, building ₹36,80,000, machinery ₹18,40,000. Check: total ₹82,80,000 = ₹81,00,000 + ₹1,80,000.

Answer: Land ₹27,60,000; building ₹36,80,000; machinery ₹18,40,000.

Example 2

Y Ltd has an old machine (original cost ₹10,00,000, accumulated depreciation ₹6,00,000, fair value ₹5,00,000). (a) It exchanges the machine for a new machine and pays ₹2,00,000 in cash. The assets are not similar assets of similar value. (b) Separately, it exchanges the same machine for a similar machine with a similar use and similar fair value, and pays ₹20,000 as a balancing amount. Find the cost of the new machine and the profit or loss on the exchange in each case.

Show the solution

Carrying amount of old machine = ₹10,00,000 − ₹6,00,000 = ₹4,00,000.
Case (a): the assets are not similar assets of similar value, so use the fair value of the consideration given, that is, the old machine. Cost = ₹5,00,000 + ₹2,00,000 cash = ₹7,00,000.
Case (a) profit on exchange = fair value ₹5,00,000 − carrying amount ₹4,00,000 = ₹1,00,000.
Case (a) entry: New Machine A/c Dr ₹7,00,000; Accumulated Depreciation A/c Dr ₹6,00,000; To Old Machine A/c ₹10,00,000; To Bank A/c ₹2,00,000; To Profit on Exchange A/c ₹1,00,000. Debits ₹13,00,000 equal credits ₹13,00,000.
Case (b): similar assets of similar value are exchanged, so the cost may be taken as the carrying amount of the old machine plus the cash paid. Cost = ₹4,00,000 + ₹20,000 = ₹4,20,000.
Case (b) profit on exchange = (₹4,20,000 − ₹20,000 cash) − carrying amount ₹4,00,000 = ₹0. No gain or loss is recognised.
Case (b) entry: New Machine A/c Dr ₹4,20,000; Accumulated Depreciation A/c Dr ₹6,00,000; To Old Machine A/c ₹10,00,000; To Bank A/c ₹20,000. Debits ₹10,20,000 equal credits ₹10,20,000.

Answer: (a) Cost of new machine ₹7,00,000; profit on exchange ₹1,00,000. (b) Cost of new machine ₹4,20,000; no profit or loss on the exchange.

Exam tips

Start any exchange answer by naming the measurement basis: fair value of the consideration given, or the carrying amount where similar assets of similar value are exchanged. Examiners look for it.
In lump-sum questions, show the ratio line first. A wrong total price still earns method marks.
If a question mentions a grant, say that AS 12 governs it, then show depreciation on the correct base.
For revaluation, mention the whole class and the entry to revaluation reserve in one sentence each.
For replacement of a part, always show both steps: capitalise the new and derecognise the old.

Practice questions from AS 10 Property, Plant and Equipment

Special Cases: Exchange, Joint Purchase and Government Grants: frequently asked questions

How is an asset acquired in exchange for another asset recorded under AS 10?

Under AS 10 (Revised), Property, Plant and Equipment, cost is determined by the fair value of the consideration given, adjusted for cash paid or received. If similar assets of similar value are exchanged, the new asset's cost may be taken as the carrying amount of the asset given up, with no gain or loss. In other exchanges, the carrying amount is used to find the profit or loss.

How do you allocate a lump-sum price to several assets?

Split the total price in the ratio of the fair values of the individual assets. Add any directly attributable costs to the relevant asset or split them in the same ratio if they cover all assets.

How is an asset acquired by issuing shares recorded?

The cost is the fair value of the asset acquired or the fair value of the shares issued, whichever is more clearly evident. The difference from the face value of shares goes to securities premium if applicable.

Where does the revaluation surplus go?

An increase goes to revaluation reserve, except to the extent it reverses an earlier decrease on the same asset charged to profit and loss, which is credited to profit and loss. A decrease is charged to profit and loss, except to the extent of any credit balance in the revaluation reserve for that asset, against which it is charged.

How is the replacement of a part of PPE treated?

The cost of the replacement part is capitalised if the recognition criteria are met. The carrying amount of the replaced part is derecognised at the same time, and the resulting loss or gain goes to profit and loss.