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

Under Ind AS 16 as notified in India, a plant is being tested before it is ready for use. The plant produced sample units during testing, and these were sold for Rs 3,00,000 net of selling costs. The cost of the materials, labour and other costs of producing and testing those units was Rs 2,20,000. How is the excess of Rs 80,000 treated?

The Rs 80,000 excess is deducted from the directly attributable costs that make up the plant's cost. Ind AS 16 as notified in India did not adopt the IAS 16 amendment on proceeds before intended use, so the excess is not recognised in profit or loss.

  1. ARecognised in profit or loss as other income in the period of sale
  2. BDeducted from the directly attributable costs forming part of the cost of the plantCorrect
  3. CCredited to a capital reserve in equity
  4. DCarried as deferred income and released over the plant's useful life

Explanation

Ind AS 16 as notified differs from IAS 16. Paragraph 17(e) is amended so that the excess of net sale proceeds of items produced over the cost of testing is not recognised in profit or loss. It is deducted from the directly attributable costs included in the cost of the asset. Treating it as income follows the IAS 16 amendment, which Ind AS 16 has not adopted.

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