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CMA Final · Corporate Financial Reporting · Property, Plant and Equipment (Ind AS 16)

Sri Venkat Textiles Ltd trial-runs a new machine before it is ready for intended use. The directly attributable cost of the machine, including testing costs of Rs 2,00,000, is Rs 48,00,000. During testing, the output was sold for net proceeds of Rs 3,50,000. Applying Ind AS 16 as notified in India, what is the cost of the machine to be capitalised?

The machine is capitalised at Rs 46,50,000. Ind AS 16 as notified in India deducts only the excess of net sale proceeds over testing cost (Rs 1,50,000) from directly attributable costs of Rs 48,00,000, rather than recognising it in profit or loss.

  1. ARs 48,00,000
  2. BRs 46,50,000Correct
  3. CRs 44,50,000
  4. DRs 50,00,000

Explanation

Under Ind AS 16 as amended in India, the excess of net sale proceeds over testing cost is deducted from directly attributable costs, not taken to profit or loss. Excess = 3,50,000 - 2,00,000 = 1,50,000. Cost = 48,00,000 - 1,50,000 = 46,50,000. Deducting the full 3,50,000 would give 44,50,000, but testing costs are already inside the 48,00,000, so only the excess is deducted. Wait: that would double count, so 44,50,000 is wrong.

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