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

Himalaya Pharma Ltd exchanged an old machine (original cost Rs 20,00,000, accumulated depreciation Rs 12,00,000, fair value Rs 9,00,000) for a new dissimilar machine of fair value Rs 10,00,000 and paid cash of Rs 1,00,000. Following AS 10, at what amount is the new machine recorded and what is the gain or loss on the old machine?

The new machine is recorded at Rs 10,00,000 with a gain of Rs 1,00,000. Cost equals the fair value of the old machine (Rs 9,00,000) plus cash paid (Rs 1,00,000). The old machine's carrying amount is Rs 8,00,000, so the gain is fair value Rs 9,00,000 minus Rs 8,00,000.

  1. ARs 10,00,000; gain of Rs 1,00,000Correct
  2. BRs 9,00,000; loss of Rs 1,00,000
  3. CRs 10,00,000; loss of Rs 1,00,000
  4. DRs 9,00,000; gain of Rs 1,00,000

Explanation

Cost of the new asset is the fair value of the asset given up plus cash paid: 9,00,000 + 1,00,000 = 10,00,000. Carrying amount of the old machine is 20,00,000 − 12,00,000 = 8,00,000, so the gain is 9,00,000 − 8,00,000 = Rs 1,00,000. A loss would arise only if fair value were below the carrying amount.

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