Skip to content

CMA Intermediate · Financial Accounting · Property, Plant and Equipment (AS 10)

Sundaram Textiles buys a machine that could physically last 15 years. Its asset management policy is to dispose of such machines after 8 years, when a stated proportion of the economic benefits will have been consumed. According to AS 10, the useful life for depreciation is:

The useful life is 8 years. AS 10 defines useful life by the asset's expected utility to the enterprise, and the enterprise's policy of disposing of assets after a set period can make it shorter than the economic or physical life.

  1. A15 years, because the asset's physical life governs
  2. B8 years, because useful life is defined by expected utility to the enterprise and may be shorter than economic lifeCorrect
  3. C12 years, being the average of 8 and 15
  4. DIndefinite, because the machine is not yet worn out

Explanation

AS 10 states that useful life is defined in terms of expected utility to the enterprise. The asset management policy may involve disposal after a specified time, so useful life may be shorter than economic life. Hence 8 years applies; using 15 years ignores the policy.

Did you get it right without looking?

One question tells you little. A timed set on Property, Plant and Equipment (AS 10) shows your real accuracy, how long you take and where you lose marks.

Practise Property, Plant and Equipment (AS 10)Free diagnostic mock

More Property, Plant and Equipment (AS 10) questions