Whether to treat LPG cylinder as a fixed asset or stock item

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Deep Krishna (Querist)
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19 January 2011 I am writing with respect to gas filling company which brings LPG gas from third country and sell LPG gas in cylinders (cooking purpose). Cylinders are treated as fixed asset as per Income Tax Act. But as per International Accounting Standard Plant, Property and equipment, LPG cylinder neither falls in criteria of definition. So my firm's view is to treat it as stock item and charge impairment loss over its life (apparently 15 years) from the date of use.
So I want opinions of expert in this regard.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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19 January 2011 As per Indian standards AS-10 has to be followed till IFRS is implemented.If this observation is acceptable, pl read the opinion in http://www.knowledgebible.com/forum/showthread.php/5141-Accounting-and-auditing-practices-Volume-19-Query-No.-29-Depreciation-on-low-cost-items-as-per-Schedule-XIV-to-the-Companies-Act-1956

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CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)
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19 January 2011 agrred with the expert. few part of the link above are "\
Points Considered by the Committee
8. The Committee takes note of the requirement of Schedule XIV that where the aggregate actual cost of individual items of plant and machinery costing Rs. 5,000 or less constitutes more than 10 per cent of total actual cost of plant and machinery, the rates of depreciation specified in item II of the Schedule should be applied to such items.
9. The Committee also notes that Accounting Standard (AS) 10, ‘Accounting for Fixed Assets’, requires (paragraph 25) that “fixed asset should be eliminated from financial statements on disposal or when no further benefit is expected from its use and disposal.” The above requirement of AS 10 implies that a fixed asset which is in use should continue to appear in the books of account and financial statements even if depreciation thereon has been provided at the rate of 100 per cent.
10. Considering the above, the Committee is of the view that the expression ‘aggregate actual cost of individual items of plant and machinery costing Rs. 5,000 or less’ used in Note no. 8 of Schedule XIV should be construed to mean the aggregate cost of such items (i.e., those costing Rs. 5000 or less individually) as appearing in the books of account. As already stated in paragraph 9 above, the aforesaid figure would also include those low-cost items purchased and fully depreciated in earlier years which are still in use. The expression ‘total actual cost of plant and machinery’ should also be construed in a like-wise manner. If, in a year, the aggregate cost of low-cost items of plant and machinery works out to 10 per cent or less of the total actual cost of plant and machinery (both figures computed in the manner described earlier in this paragraph and including the low-cost items acquired during the year), depreciation in respect of low-cost items of plant and machinery acquired during the year should be provided at 100 per cent. If the threshold limit of 10 per cent is exceeded, the applicable rate of depreciation in respect of the aforesaid items would be the rate specified in Item II of Schedule XIV, i.e., 16.21 per cent on straight line basis in the instant case.
11. Accounting Standard (AS) 1, ‘Disclosure of Accounting Policies’, requires (paragraph 24) that “all significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed”. Accordingly, the Committee is of the view that the company should disclose its accounting policy relating to depreciation in respect of LPG equipment.

Deep Krishna

Deep Krishna (Querist)
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20 January 2011 @ B.Chackrapani Warrier Yes I have read your link but I was just thinking out of the box what if we prepare financial statements as per IFRS, will it be appropriate to treat LPG cylinder as inventories and deposit received for those cylinder as current liabilities. Again here point to be noted is if we treat cylinder as fixed asset as per Income Tax Act can we treat related deposit as current liabilities. This is the question

Aashok Kumar Sharma online

Aashok Kumar Sharma online

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03 August 2025 Great question! The treatment of LPG cylinders—whether as fixed assets or inventory—has been a debated topic in accounting circles, especially given the differences between Income Tax Act provisions and accounting standards like AS-10 and IFRS.

Let me summarize the key points and perspectives to help you decide:

1. Income Tax Act Position:
The Income Tax Act treats LPG cylinders as fixed assets.

The rationale is that cylinders are durable, reused over many years, and used in the business to deliver LPG gas.

Consequently, depreciation is charged on the cylinders as per the prescribed rates under Income Tax rules.

2. Accounting Standards (AS-10) Position:
AS-10 defines fixed assets (property, plant, and equipment) as tangible assets held for use in the production or supply of goods/services, expected to be used over more than one accounting period.

The cylinders do not fit neatly into the definition since they are consumable items that get refilled and passed on to customers.

However, AS-10 implies that assets in use should remain on books even if fully depreciated.

Treatment per AS-10 could be:

Treat cylinders as fixed assets and depreciate over their useful life.

Or consider low-cost assets under Schedule XIV guidance (if individual cost < Rs. 5,000, consider 100% depreciation or a higher depreciation rate).

3. IFRS / International Perspective:
IFRS is less explicit on LPG cylinders.

The argument is cylinders could be treated as inventory if they are essentially being sold and replaced regularly.

Treating cylinders as inventory aligns with the economic reality that the cylinders are returned and refilled, not permanently retained by the company.

Deposit received against cylinders should be treated as current liabilities (customer deposits/refundable advances) since the cylinders may be returned.

4. Practical/Recommended Approach:
Aspect Treatment under Income Tax Act Treatment under AS-10 & IFRS
LPG Cylinders Fixed asset (depreciated) Preferably inventory, depreciated if treated as asset
Deposit against cylinders Not specifically addressed Current liability (refundable deposits)
Depreciation As per Income Tax schedule Based on useful life (e.g., 15 years) or full depreciation if low cost
Disclosure Required accounting policy Disclose accounting policy on treatment

5. Your firm’s view (Treat as stock & impairment loss):
Treating LPG cylinders as stock items (inventory) and charging impairment or loss over their life is reasonable under accounting standards/IFRS.

This aligns with the commercial substance that cylinders are returned, refilled, and essentially held for resale/use.

Deposit amounts received should be shown as current liabilities, reflecting customer deposits refundable upon return.

6. Key Question You Raised:
If we treat the cylinder as fixed asset (Income Tax Act), can we treat the related deposit as current liabilities?

Yes, even if cylinders are fixed assets in tax books, from an accounting perspective, deposits received should be shown as current liabilities because these are refundable.

This is an example of differing treatments between tax and accounting books which is common and acceptable if properly disclosed.

Summary Recommendation:
For Income Tax purposes: Treat LPG cylinders as fixed assets and claim depreciation accordingly.

For Accounting purposes (AS-10 / IFRS): Treat LPG cylinders as inventory or consumable assets, charge impairment or depreciation over useful life.

Show deposits received against cylinders as current liabilities in the balance sheet.

Disclose the accounting policy clearly about the treatment of LPG cylinders and deposits.

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