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CSEET · Fundamentals of Accounting · Depreciation and Amortization

Sharma Textiles uses a machine for one shift a day. It plans to run it for three shifts a day from next year, all else unchanged. Which AS 10 factor mainly suggests a shorter useful life?

Expected physical wear and tear is the factor that applies. AS 10 says wear and tear depends on operational factors such as the number of shifts the asset is used and its maintenance. Running three shifts instead of one raises wear and so shortens useful life.

  1. AExpiry date of a lease
  2. BExpected physical wear and tear depending on number of shiftsCorrect
  3. CRevenue to be earned from the machine
  4. DFall in the market price of shares of the company

Explanation

AS 10 states that expected physical wear and tear depends on operational factors such as the number of shifts for which the asset is used and its repair and maintenance. Moving from one to three shifts increases wear and tear and shortens the useful life. No lease or revenue factor is given in the data.

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