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Ind AS 16 quick review

Ankur Dudani 
Updated on 01 August 2020

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Quich Review of IND AS 16

IND AS 16 deals with Accounting & depreciation of property, plant and equipment which are covered by existing Accounting Standard 10 (Accounting for Fixed Assets) & AS 6 (Depreciation Accounting).

1. Meaning of Fixed Assets

Fixed assets are assets which are held for use in production of goods, rendering of services, administrative use, and rental purpose. It does not include assets held for sale. [ Discarded Assets, held for sale are excluded].

2. Component Based Accounting

IND AS 16 requires Component Based Accounting.

It means components of Assets having SUBSTANTIAL VALUE and different useful life should be recorded as separate asset.

Schedule II of companies act, 2013 also mandates use of component based accounting.

AS - 10 does not prohibit use of Component Based Accounting.

3. Accounting for Real Estate Developers

Existing AS 10 specifically excludes accounting for real estate developers from its scope, whereas Ind AS 16 does not exclude such real estate developers from its scope.

4. Recognition Principle:

Fixed Asset should be recognized if it is:-

a) Probable that future economic benefit will flow to entity‚Äč AND
b) Cost can be measured

Existing AS 10 does not give any recognition principle for recognition of a fixed asset. As per the Existing AS 10, any item which satisfies the definition of a fixed asset should be recognized as a fixed asset.

5. Initial Recognition (Acquired, Self constructed Asset)

At [Purchase price + Import duties + Non refundable taxes]

XXXXXXXX

ADD: Directly attributable expenses [Installation + test run exp.]

XXXXXXXX

ADD: Expected exp. For dismantling such asset due to legal obligation

XXXXXXXX

Note: in case of exchange of assets, value of asset acquired should be:

Fair value of Asset given up ± cash transfers

Note: Major inspection costs incurred for making assets use worthy should be capitalized, when incurred.

Note: With regard to self-constructed assets, Ind AS 16, specifically states that the cost of abnormal amounts of wasted material, labour, or other resources incurred in the construction of an asset is not included in the cost of the assets

6. Fixed Asset can be subsequently measured at cost or revalued amount

Note: if revaluation policy is adopted, it should be based on fair value as per IND as 113
Note: revaluation should be done at regular frequency
Note: revaluation profit should be transferred to other comprehensive items (OCI)

7. Depreciation

i) Depreciation is a systematic allocation of assets other than land(freehold), over useful life of asset.

ii) Depreciation is charged to profit and loss account only. It is not to be adjusted against revaulation reserve.

iii) Systematic means any method which reflects consumption pattern of asset future economic benefit do not reflect true consumption pattern, unless justified.

iv) Method of depreciation can be changed such change should be prospective and considered as change in accounting estimates.

v) Useful life and residual value should be reviewed at least once in a year.

8.Difference Between AS-10,6 & IND AS 16

9.

AS-10,6

IND AS 16

Definition of F.A. not having clarity.

Definition of F.A. more clear.

Component based accounting not mandatory.

Component based accounting mandatory.

Dismantling cost legally required, not included in cost of F.A.

Dismantling cost legally required, included in cost of F.A.

Major inspection cost written in Profit & loss A/c.

Major inspection cost capitalized to F.A.

Exchange of Assets has different criteria.

Exchange of Assets at Fair value + cash transfer.

Revaluation-

  • Fair value should be reliable

  • No frequency

  • Revaluation reserve

Revaluation-

  • Fair value as per Ind As 113

  • Regular frequency

  • T/f to Revaluation reserve through OCI

Depreciation as per systematic basis.

systematic basis to reflect consumption Pattern.

Useful life & scrap to be reviewed.

Useful life & scrap to be reviewed at least once in a year.


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