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

Kaveri Textiles Ltd bought a machine for ₹40,00,000 on 1 April 2022, with a useful life of 10 years and nil residual value, depreciated on the straight-line method. A separately identifiable major part of the machine, which originally cost ₹8,00,000 and had the same life, was replaced on 1 April 2025 by a new part costing ₹10,00,000. The old part has no scrap value. What is the carrying amount of the machine immediately after the replacement is recognised?

The carrying amount is ₹32,40,000. Before replacement the machine stands at ₹28,00,000 after three years of depreciation. The replaced part's carrying amount of ₹5,60,000 is derecognised, not its original cost, and the new part's cost of ₹10,00,000 is capitalised, giving ₹32,40,000.

  1. A₹32,40,000Correct
  2. B₹38,00,000
  3. C₹42,00,000
  4. D₹30,00,000

Explanation

Carrying amount before replacement = 40,00,000 × 7/10 = ₹28,00,000. The old part's carrying amount is 8,00,000 × 7/10 = ₹5,60,000, which is derecognised (loss ₹5,60,000). New carrying amount = 28,00,000 − 5,60,000 + 10,00,000 = ₹32,40,000. Deducting the old part at cost (₹8,00,000) gives ₹30,00,000, which is wrong.

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