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CMA Intermediate · Financial Accounting · Property, Plant and Equipment (AS 10)

Bharat Steels has a plant costing Rs 50,00,000 made up of a furnace body costing Rs 30,00,000 and a lining costing Rs 20,00,000. Both parts have a useful life of 10 years and the same depreciation method, and the residual value of the whole plant is nil. Under AS 10, which statement is correct?

The parts may be grouped, because AS 10 allows significant parts with the same useful life and depreciation method to be grouped. Straight-line depreciation is Rs 50,00,000 divided by 10 years, which is Rs 5,00,000 per year.

  1. AThe two parts must always be depreciated separately even with identical lives and methods
  2. BThe parts may be grouped to determine the depreciation charge, giving Rs 5,00,000 per year on straight-line basisCorrect
  3. CThe lining alone must be depreciated; the body is not depreciated
  4. DThe parts may be grouped, giving Rs 50,00,000 depreciation in the first year

Explanation

AS 10 permits significant parts with the same useful life and depreciation method to be grouped in determining the charge. Straight-line: 50,00,000 / 10 = Rs 5,00,000 a year. Separate calculation gives 3,00,000 + 2,00,000 = 5,00,000, the same, so the option requiring separation is wrong in saying it is mandatory.

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