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

Bharat Engineering Pvt Ltd bought a CNC machine at a list price of ₹20,00,000 and received a 10% trade discount. It also paid non-refundable customs duty of ₹50,000, freight of ₹30,000, installation charges of ₹40,000 and testing charges of ₹20,000. During the trial run period it incurred initial operating losses of ₹60,000, and it spent ₹25,000 training operators. At what amount should the machine be capitalised under AS 10?

The machine is capitalised at ₹19,40,000. Cost is the price net of trade discount plus non-refundable duties, freight, installation and testing. Initial operating losses and staff training are not directly attributable costs of bringing the asset to its working condition, so they are charged to profit and loss.

  1. A₹19,40,000Correct
  2. B₹20,00,000
  3. C₹19,65,000
  4. D₹21,40,000

Explanation

Price after discount is 20,00,000 − 2,00,000 = 18,00,000. Add duty 50,000, freight 30,000, installation 40,000 and testing 20,000 to get 19,40,000. Initial operating losses and training costs are not directly attributable to bringing the asset to working condition, so they are expensed. Including the operating loss gives 20,00,000, and including training gives 19,65,000.

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