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CMA Final · Corporate Financial Reporting · Property, Plant and Equipment (Ind AS 16)

Godavari Foods Ltd is testing a new plant before it is ready for intended use. Directly attributable costs of bringing it to working condition total ₹90 lakh, including testing costs of ₹6 lakh. During testing, items produced are sold for net proceeds of ₹9 lakh. Under Ind AS 16 as notified in India, what is the cost of the plant and the treatment of the excess of sale proceeds over testing cost?

The plant is recorded at ₹87 lakh. Under Ind AS 16 the excess of net sale proceeds (₹9 lakh) over testing cost (₹6 lakh), being ₹3 lakh, is deducted from directly attributable costs rather than taken to profit or loss.

  1. ACost ₹87 lakh; excess of ₹3 lakh is deducted from directly attributable costsCorrect
  2. BCost ₹90 lakh; ₹9 lakh proceeds recognised in profit or loss
  3. CCost ₹90 lakh; excess of ₹3 lakh recognised in profit or loss
  4. DCost ₹81 lakh; entire ₹9 lakh proceeds deducted from cost

Explanation

Ind AS 16 para 17(e), as amended, says the excess of net sale proceeds over the cost of testing is not recognised in profit or loss but deducted from directly attributable costs. Excess = 9 - 6 = ₹3 lakh, so cost = 90 - 3 = ₹87 lakh. Taking proceeds to profit or loss follows IAS 16, which India did not adopt.

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