assets capitalised provisionally current treatment

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This query is : Resolved

laxmi narain (Querist)

30 January 2009 My client is a large power generating co. having two power
generating unit. one of the unit was declared commercial and hence
provisionally capitalised in 2005. The contracts given for
construction/ supply were not finally settled at that time and
therefore their final values were estimated and provisional
value were arrived at for capitalisation of project assets.

During the current year, the contracts have been finally closed and
actual values have been arrived at.

The final values of the contracts is less than the values at
which the projects assets were capitalised. The difference between
the final value of the contracts and the estimated value of the
contracts at which the assets were capitalised is Rs.21.18 crores
which is 0.96% of the total project assets capitalised.

my query is whether the assets would be de-capitalised and
depreciation from the 2005 to till date would be treated as "prior
period item" or it would be treated change in accounting estimate
and deprecitaion would be provided over the remaining useful life of
the assets capitalised on its reduced value?

My stand is that since it is only a change in accounting estimates
considering AS-5 and AS-10, depreciation should be provided over the
remaining useful life of the assets on its reduced value(by Rs.21.18
crores) and there is no need to recalcuate and provide depreciation
from 2005 to till date as "prior period item."

Kindly guide me.

Jitender

Jitender (Expert)

30 January 2009 your opinion is correct that it is not prior period item as this is not resulted becz of mistake. This is definitely change of estimates.

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