Depreciation - AS 10

Accounting Standard 10 prescribes the accounting treatment for property, plant, and equipment to users of the financial statements this will help them to discern information about an investment that is made by the enterprise. The decision about its property, plant, and equipment and the changes in that investment.

These issues in accounting for property, plant, and equipment which help in the recognition of the assets, the determination of their carrying amounts, and the depreciation charges and impairment losses are recognized in relation to them.

Scope

The Accounting Standard should be applied in the accounting for property, plant, and equipment while another Accounting Standard requires a different accounting treatment. This Accounting Standard does not apply to:

• Biological assets that are related to agricultural activity else than the bearer plants.

• Applies to wasting assets which includes mineral rights, expenditure on the exploration for and extraction of the minerals, oil, natural gas, and similar other non-regenerative resources.

Other than these, Accounting Standards may require recognition of an item or property, plant, and equipment which will be based on an approach that is different from the Standard.

For example, AS 19, in Leases, requires an enterprise that evaluates recognition of an item of the leased property, plant, and equipment on the basis of the transfer of risks and rewards. However, in the rest of other cases different aspects of the accounting treatment for these assets which includes depreciation, are prescribed by this Standard. Also, investment property, which is defined in AS 13, accounting for Investments, should be accounted for in accordance with the cost model prescribed in this standard.

AS 10 Property Plant Equipment

Now we know that Accounting Standard 10 deals with Property, Plant, and Equipment (PPE). The basic purpose of this standard is to lay down or specify the accounting treatment for Property, Plant, and Equipment.

This is to enable the users of the Financial Statement to understand the investment that is made by the business entity in its property, plant, and equipment and the respective changes made therein.

The main challenges which account for property, plant, and equipment include:

• Recognition of the assets.

• Calculating the carrying amounts of the assets.

• Determining the depreciation charges and the impairment losses in respect of the property, plant, and equipment.

Application of AS 10

AS 10 is to be applied when accounting for property, plant, and equipment. However, this may not be applied in cases where another accounting standard allows for different accounting treatment for the property, plant, and equipment.

In the following cases the AS 10 is not applied:

• In biological assets like live animals or plants pertaining to the agricultural activity other than bearing plants.

• AS 10 applies to the bearer plants but is not applicable to the produce on those bearer plants.

Recognition of Assets

The cost assigned to an asset that comes under the Property, Plant, and Equipment as per the AS 10 is identified as an asset only if:

• The future economic benefits are predicted to arise from such an asset that would come to the business unit.

• The cost of a particular asset is to be reliably measured.

• Also, items like - spare parts, stand-by-equipment, and servicing equipment are considered as the Property, Plant, and Equipment if that item meets the criteria of PPE as according to AS 10. Other than this, if the item does not fulfil then such items are categorized under inventory.

Further, AS 10 does not specify any unit for measurement for an item of PPE. Thus, the accounting professionals are required to make use of proper judgment to recognize an item as PPE under specific circumstances.