AS 10 and AS 26

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mazahir (Querist)
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09 September 2010 As per para 9.5 of AS 10, states that the expenses incurred between the asset ready to use and asset put to use can be deferred for the period 3 to 5 years.

But such statement is in contradiction of AS 26 which states no expenditure other than Intangible Assets (as per the definition) should be capitalized / deferred.

CA SMR

CA SMR (Expert)
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13 September 2010 In which paragraph is it stated that no expenditure other than intangible assets should be deferred?I would like to bring your attention to para 5 of AS 26,which may answer your query.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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14 July 2024 There seems to be a misunderstanding regarding the application of Accounting Standards (AS) 10 and AS 26. Let's clarify the points mentioned:

### AS 10 - Property, Plant and Equipment:

AS 10 provides guidance on the accounting treatment of property, plant, and equipment. Specifically, para 9.5 of AS 10 does not mention deferring expenses for a period of 3 to 5 years between the asset being ready to use and being put to use. Instead, AS 10 focuses on the capitalization of costs directly attributable to bringing the asset to its intended use and recognizing these costs as part of the asset's cost.

- **Capitalization Criteria:** AS 10 allows for the capitalization of costs that are directly attributable to bringing the asset to its working condition for its intended use. These costs include labor, direct materials, overheads, and other costs necessary to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

- **Subsequent Expenditure:** Any subsequent expenditure incurred after the asset is put to use, which increases the future economic benefits from the use of the asset, may be capitalized as per the requirements of AS 10.

### AS 26 - Intangible Assets:

AS 26 deals specifically with the accounting treatment of intangible assets. It specifies that expenditures incurred on intangible assets (as defined by the standard) should generally be capitalized if they meet certain criteria (e.g., enhancing future economic benefits, identifiable, controlled by the entity).

- **Scope of AS 26:** AS 26 applies to intangible assets such as patents, copyrights, trademarks, software, etc. It does not typically apply to property, plant, and equipment, which are covered under AS 10.

### Clarification:

1. **AS 10 and Expenditure:** AS 10 does not mention deferring expenses between the asset being ready to use and being put to use. Instead, it focuses on capitalizing costs necessary to bring the asset to its intended use.

2. **AS 26 and Intangible Assets:** AS 26 applies to intangible assets and specifies criteria for capitalizing expenditures related to such assets.

### Conclusion:

Based on the standards:

- **AS 10:** Focuses on the capitalization of costs to bring property, plant, and equipment to their intended use.

- **AS 26:** Deals with the capitalization of expenditures related to intangible assets.

There is no contradiction between these standards regarding the capitalization of expenditures. AS 10 applies to property, plant, and equipment, while AS 26 applies to intangible assets. It's important to apply the respective standards based on the nature of the asset being considered (tangible vs. intangible) to ensure compliance with accounting principles and accurate financial reporting.

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