CMA Final · Corporate Financial Reporting · Property, Plant and Equipment (Ind AS 16)
Mahesh Engineering Ltd capitalised a press at ₹60,00,000 with directly attributable costs included. During commissioning, items produced were sold for net proceeds of ₹9,00,000 and the testing cost of ₹6,50,000 was included in the ₹60,00,000 above. The ₹60,00,000 figure has NOT yet been reduced for the excess of proceeds over testing cost. Later the finance team proposes to credit the whole ₹9,00,000 to profit or loss and keep the cost at ₹60,00,000. Under Ind AS 16 as notified in India, what is the correct cost and treatment?
Cost is ₹57,50,000. Ind AS 16 as notified in India does not adopt the IASB amendment, so the ₹2,50,000 excess of net proceeds over testing cost is deducted from directly attributable costs instead of being credited to profit or loss.
- ACost ₹57,50,000; excess of ₹2,50,000 is deducted from cost, not credited to profit or lossCorrect
- BCost ₹60,00,000; entire ₹9,00,000 credited to profit or loss as per IAS 16 amendment
- CCost ₹51,00,000; entire ₹9,00,000 deducted from cost
- DCost ₹62,50,000; excess of ₹2,50,000 added to cost
Explanation
The Indian text states the excess of net sale proceeds over testing cost is not recognised in profit or loss but deducted from directly attributable costs. Excess = 9,00,000 - 6,50,000 = 2,50,000. Cost = 60,00,000 - 2,50,000 = 57,50,000. Crediting profit or loss follows the IASB amendment, which Ind AS 16 has not adopted.
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