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

Rohini Steels Ltd. installed a plant at a total cost of ₹50,00,000 on 1 April. It includes a furnace lining costing ₹10,00,000 that is significant relative to total cost and needs replacement every 5 years; the rest of the plant has a useful life of 20 years. Residual value is nil for all parts and the company uses the straight-line method. What is the first-year depreciation if the lining is depreciated separately?

First-year depreciation is ₹4,00,000. The furnace lining is a significant part with a different useful life, so it is depreciated separately: ₹10,00,000 over 5 years gives ₹2,00,000, and the remaining ₹40,00,000 over 20 years gives ₹2,00,000. Depreciating the whole plant over 20 years would understate the charge.

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

Explanation

AS 10 requires significant parts with different useful lives to be depreciated separately. Lining: 10,00,000/5 = ₹2,00,000. Remaining plant: 40,00,000/20 = ₹2,00,000. Total = ₹4,00,000. Treating the whole plant over 20 years gives ₹2,50,000, which ignores the shorter life of the lining.

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