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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Sundaram Textiles Ltd. purchased a machine for Rs 10,00,000 on 1 April 2024. The machine's fair value on 31 March 2026 is Rs 12,00,000, but the company continues to show it at cost less depreciation, as Indian GAAP does not permit upward revaluation to current value in this manner without a policy. Which measurement basis is the company applying in its financial statements?

The company is using the historical cost basis. The asset is recorded at its acquisition cost less depreciation, and later increases in fair value are ignored. Current cost, realisable value and present value would each change the carrying amount to reflect current or future amounts.

  1. AHistorical costCorrect
  2. BCurrent cost
  3. CRealisable value
  4. DPresent value

Explanation

Carrying the machine at original cost less depreciation, ignoring the rise in fair value, is the historical cost basis. Current cost would require showing the amount needed to acquire the asset now. Realisable value relates to sale proceeds and present value to discounted future cash flows, neither of which is used here.

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