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

Kaveri Industries Ltd bought a plant for Rs 50,00,000 on 1 April 2023, estimated useful life 10 years, no residual value, straight-line depreciation. The plant has a major part, a turbine costing Rs 10,00,000 included in this cost, with a separate useful life of 5 years. The turbine is replaced on 1 April 2028 at Rs 14,00,000, and the old turbine is scrapped with no value. Assume the turbine was depreciated separately from the start. What is the carrying amount of the replaced turbine derecognised on 1 April 2028?

The carrying amount derecognised is nil. The turbine costing Rs 10,00,000 was depreciated at Rs 2,00,000 per year over its five-year life, so by 1 April 2028 it was fully depreciated. The replacement cost of Rs 14,00,000 is capitalised as a new component.

  1. ARs 10,00,000
  2. BRs 5,00,000
  3. CRs 0Correct
  4. DRs 14,00,000

Explanation

The turbine, Rs 10,00,000 over 5 years, is depreciated at Rs 2,00,000 a year. From 1 April 2023 to 1 April 2028 is 5 years, so accumulated depreciation is Rs 10,00,000 and carrying amount is nil. The new cost of Rs 14,00,000 is capitalised, and no loss arises on derecognition. Rs 5,00,000 wrongly assumes half the life elapsed.

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