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

Sunrise Textiles Ltd purchased a machine from a Surat vendor at a list price of Rs 10,00,000. A trade discount of 10% was allowed. Freight and insurance in transit were Rs 40,000, installation and testing charges were Rs 30,000, and Rs 20,000 was spent on staff training to operate the machine. What is the amount at which the machine should be capitalised under AS 10?

The machine is capitalised at Rs 9,70,000. Cost is the list price net of the trade discount (Rs 9,00,000) plus freight and insurance (Rs 40,000) and installation and testing (Rs 30,000). Staff training is not a directly attributable cost of bringing the asset to working condition, so it is charged to profit and loss.

  1. ARs 9,70,000Correct
  2. BRs 9,90,000
  3. CRs 10,70,000
  4. DRs 10,90,000

Explanation

Cost = 10,00,000 less 10% trade discount = 9,00,000. Add freight and insurance 40,000 and installation and testing 30,000 = 9,70,000. Training cost of 20,000 is not a directly attributable cost of bringing the asset to working condition, so it is expensed. Option Rs 9,90,000 wrongly includes training.

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