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CMA Intermediate · Financial Accounting · Property, Plant and Equipment (AS 10)

Kaveri Industries Ltd is constructing a plant. Its books show: expenditure capitalised in the course of construction ₹48 lakh; signed orders for machinery not yet delivered ₹30 lakh; a factory building of carrying amount ₹90 lakh mortgaged to a bank; an old press of carrying amount ₹4 lakh retired from active use and not held for disposal. Which statement is correct under AS 10?

The ₹48 lakh construction expenditure, ₹30 lakh commitments and ₹90 lakh mortgaged building must be disclosed, while the ₹4 lakh press retired from active use and not held for disposal is only encouraged to be disclosed. AS 10 makes the first three mandatory.

  1. AOnly the ₹90 lakh mortgage needs disclosure; the others are optional
  2. BThe ₹48 lakh construction expenditure, ₹30 lakh commitments and the mortgage must be disclosed; the ₹4 lakh press is only encouraged to be disclosedCorrect
  3. CAll four items are mandatory disclosures
  4. DThe ₹30 lakh commitments are only encouraged to be disclosed, while the press must be disclosed

Explanation

AS 10 requires disclosure of expenditure recognised in carrying amount during construction (₹48 lakh), contractual commitments (₹30 lakh) and assets pledged as security or subject to title restrictions (₹90 lakh). The carrying amount of assets retired from active use and not held for disposal is only encouraged. So option 2 holds, whereas assets retired and held for disposal would be mandatory.

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