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

Arvind Infra Ltd constructed a plant for its own use. Costs: materials issued ₹12,00,000 (including ₹1,00,000 of abnormal wastage); labour ₹6,00,000; directly attributable overheads ₹2,00,000; general administration overheads allocated ₹1,50,000; borrowing costs on a specific loan for the construction period ₹90,000, which meet AS 16 capitalisation criteria; cost of testing whether the plant functions properly ₹70,000. What is the cost of the plant under AS 10?

The plant is capitalised at ₹20,60,000. Normal materials, labour, direct overheads, qualifying borrowing costs and testing costs are included. Abnormal wastage of ₹1,00,000 and general administration overheads of ₹1,50,000 are excluded because they are not directly attributable to bringing the asset to working condition.

  1. A₹20,60,000Correct
  2. B₹22,10,000
  3. C₹21,60,000
  4. D₹19,70,000

Explanation

Materials net of abnormal wastage = ₹11,00,000. Cost = 11,00,000 + 6,00,000 + 2,00,000 + 90,000 (borrowing cost) + 70,000 (testing) = ₹20,60,000. General administration overheads and abnormal wastage are excluded. ₹22,10,000 wrongly adds administration overheads, ₹21,60,000 wrongly includes abnormal wastage, and ₹19,70,000 omits borrowing cost.

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