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

Kaveri Polymers Ltd trial-runs a new plant before it is ready for intended use. Testing costs of ₹4,00,000 were incurred. The items produced during testing were sold for net proceeds of ₹6,50,000. Other directly attributable costs of the plant total ₹95,00,000, which include nothing for testing. Under Ind AS 16 as notified in India, what is the cost of the plant?

The plant is recorded at ₹92,50,000. Under Ind AS 16 as notified in India, the excess of net sale proceeds of test output over testing cost, here ₹2,50,000, is deducted from directly attributable costs rather than taken to profit or loss, so ₹95,00,000 plus ₹4,00,000 less ₹6,50,000.

  1. A₹95,00,000Correct
  2. B₹98,50,000
  3. C₹92,50,000
  4. D₹99,00,000

Explanation

Ind AS 16 para 17(e) as amended in India: the excess of net sale proceeds of items produced over the cost of testing is not recognised in profit or loss but deducted from directly attributable costs. Excess = 6,50,000 - 4,00,000 = 2,50,000. Cost = 95,00,000 + 4,00,000 testing - 6,50,000 proceeds = 92,50,000 if testing is not already included. Since the 95,00,000 excludes testing, cost = 92,50,000. Option 0 ignores the testing and proceeds; the IAS 16 treatment would give 99,00,000 (proceeds to profit, testing capitalised).

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