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

Bharat Textiles Ltd. bought a machine from a supplier in Coimbatore. Invoice price Rs 12,00,000; trade discount Rs 1,00,000; GST of Rs 1,98,000 on the net price is fully eligible for input credit; freight inward Rs 40,000; installation Rs 60,000; and Rs 25,000 spent on staff training for operating the machine. What amount should be capitalised as the cost of the machine under AS 10?

The machine is capitalised at Rs 12,00,000. This is the invoice price less trade discount (Rs 11,00,000) plus freight and installation of Rs 1,00,000. Input-credit GST is recoverable, so excluded, and staff training is not a directly attributable cost of bringing the asset to working condition.

  1. ARs 11,00,000
  2. BRs 12,00,000Correct
  3. CRs 12,25,000
  4. DRs 13,98,000

Explanation

Cost = 12,00,000 - 1,00,000 trade discount = 11,00,000; add freight 40,000 and installation 60,000 = 12,00,000. Recoverable GST is excluded and training costs are not part of cost. Rs 12,25,000 wrongly includes training.

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