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

Kaveri Engineering Ltd. purchased a lathe machine. The list price was ₹50,00,000 and a trade discount of ₹2,00,000 was allowed. GST of 18% was paid on the discounted price, and full input tax credit is available to the company. Freight inwards was ₹1,20,000, installation charges were ₹80,000 and testing charges were ₹50,000. The company also incurred initial operating losses of ₹90,000 and advertisement expenses of ₹1,00,000 for launching the product made on the machine. At what amount should the machine be recorded under AS 10?

The machine is recorded at ₹50,50,000. This is the price net of trade discount (₹48,00,000) plus freight, installation and testing. Creditable GST, initial operating losses and launch advertising are excluded because they are not costs of bringing the asset to working condition.

  1. A₹50,50,000Correct
  2. B₹51,40,000
  3. C₹52,50,000
  4. D₹59,14,000

Explanation

Cost = (50,00,000 − 2,00,000) + 1,20,000 + 80,000 + 50,000 = ₹50,50,000. GST is excluded because credit is available. Initial operating losses and launch advertising are not part of cost. Adding the ₹90,000 loss gives ₹51,40,000, which is wrong.

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