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

Nandini Foods Ltd. incurred the following on a new plant before it was ready for use: purchase price ₹18,00,000, site preparation ₹1,50,000, testing costs ₹60,000, initial operating loss ₹90,000 and general administration overheads allocated ₹40,000. As per AS 10, what is the cost of the plant?

The plant's cost is ₹20,10,000, being purchase price, site preparation and testing costs. Initial operating losses and general administrative overheads are not directly attributable to bringing the asset to working condition, so AS 10 does not allow them to be capitalised.

  1. A₹20,10,000Correct
  2. B₹21,00,000
  3. C₹20,50,000
  4. D₹21,40,000

Explanation

Directly attributable costs are purchase price 18,00,000, site preparation 1,50,000 and testing 60,000, totalling 20,10,000. Initial operating losses and general administration overheads are not capitalised under AS 10. ₹21,00,000 wrongly includes the initial operating loss; ₹20,50,000 wrongly includes administration overheads.

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