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

Sundaram Textiles Ltd. is setting up a new weaving unit at Coimbatore. During the year it incurred the following: (i) levelling and preparing the factory site, (ii) fees paid to architects for the factory building, (iii) general administration overheads of the head office, (iv) operating losses during the initial months of production. Which of these costs can be included in the cost of the property, plant and equipment under AS 10?

Only site preparation costs and architects' fees can be capitalised. They are directly attributable to bringing the asset to its working condition. Head-office administration overheads and initial operating losses are not directly attributable and are charged to the profit and loss statement of the period.

  1. A(i) and (ii) onlyCorrect
  2. B(i), (ii) and (iii) only
  3. C(ii), (iii) and (iv) only
  4. DAll four items

Explanation

Site preparation and professional fees (architects) are directly attributable costs of bringing the asset to its working condition, so they are capitalised. General administration overheads are not directly attributable, and initial operating losses are expenses of the period. Hence options including (iii) or (iv) are wrong.

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