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CA Final · Financial Reporting · Ind AS 16 Property, Plant and Equipment

Godavari Steel Ltd acquired a plant on 1 April 2024 at Rs 90 lakh with an estimated life of 10 years and nil residual value. The plant has two major components: a furnace costing Rs 40 lakh (life 5 years) and the remaining body (life 10 years). Which statement about depreciation for the year ended 31 March 2025 is correct under Ind AS 16, depreciating each part separately on a straight-line basis?

Depreciation is Rs 13 lakh. Each part of an item with a cost significant to the total is depreciated separately: furnace Rs 40 lakh over 5 years gives Rs 8 lakh, and the remaining Rs 50 lakh over 10 years gives Rs 5 lakh.

  1. ARs 13 lakhCorrect
  2. BRs 9 lakh
  3. CRs 18 lakh
  4. DRs 8 lakh

Explanation

Furnace: 40/5 = Rs 8 lakh. Body: (90-40)/10 = Rs 5 lakh. Total = Rs 13 lakh. Rs 9 lakh uses a single 10-year life for the whole plant, ignoring the significant component with a different life. Rs 8 lakh is the furnace alone.

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