By G NARENDRAN B.COM., ACA.,ACMA., CS MEASUREMENT PRINCIPLES IN ACCOUNTING STANDARDS UNDER COMPANIES (Accounting Standards) RULES 2006 By G NARENDRAN B.COM., ACA.,ACMA., CS

FRAMEWORK FOR ASSET RELATED ACCOUNTING STANDARDS Initial recognition criteria Subsequent additions Subsequent measurements De-recognition criteria

AS 10 - PROPERTY, PLANT AND EQUIPMENT (Revised) TANGIBLE ASSETS AS 26 - INTANGIBLE ASSETS INTANGIBLE ASSETS

INITIAL RECOGNITION CRITERIA it is probable that future economic benefits associated with the item will flow to the enterprise (b) the cost of the item can be measured reliably

SAFETY AND ENVIRONMENTAL EQUIPMENTS

INITIAL MEASUREMENT The cost of an item of PPE comprises: its purchase price - trade discounts and rebates + import duties and non-refundable purchase taxes,. any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. the initial estimate of the costs of dismantling at present value

DIRECTLY ATTRIBUTABLE COST Costs of employee benefits Costs of site preparation Initial delivery and handling costs Installation and assembly costs Costs of testing whether the asset is functioning properly, after deducting the net proceeds from the production on test run Professional fees Borrowing cost to the extent permitted under AS 16

EXAMPLES OF COST NOT TO BE CAPITALIZED Pre-operative expenses Advertisement and promotional cost Training cost Cost of relocating the entity’s operation

COST OF DISMANTLING/DECOMMISSIONING The elements of cost to be incorporated in the initial recognition of an asset are to include the estimated costs of its eventual dismantlement. That is, the cost of the asset is "grossed up" for these estimated terminal costs, with the offsetting credit being posted to a liability account.

COST OF SELF CONSTRUCTED ASSET

EXCHANGE OF ASSETS Exchange of items of PPE , regardless of whether the assets are similar, are measured at fair value, unless: the exchange transaction lacks commercial substance the fair value of neither of the asset exchanges can be measured reliably If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up

SUBSEQUENT COST The issue is whether subsequent expenditure is capital expenditure (i.e., to the Balance Sheet) or revenue expenditure (i.e., profit or loss statement) The cost of regular replacement is capitalized, if the recognition criteria are met. If not, they will be posted to profit or loss statement The carrying amount of replaced parts (old parts) is derecognized (i.e., treated as a disposal)

SUBSEQUENT MEASUREMENT Cost Model Carry at cost less any accumulated depreciation and any accumulated impairment losses Revaluation Model Carry at a revalued amount, being fair value at the date of the revaluation less any subsequent accumulated depreciation and any accumulated impairment losses

DEPRECIATION Significant component Useful life Residual value

DEPRECIABLE AMOUNT Factors to be considered Expected usage Expected physical wear and tear Technical obsolescence

DEPRECIATION METHODS Straight line Diminishing balance Sum of units

DEPRECIATION AS PER SCHEDULE II OF THE COMPANIES ACT, 2013

TREATMENT OF LAND DEVELOPMENT COST

AS 26 – INTANGIBLE ASSETS

RECOGNITION CRITERIA Future economic benefits Reliably measured

COST OF INTANGIBLE ASSETS

SELF GENERATED GOODWILL

RESEARCH AND DEVELOPMENT

COST OF INTERNALLY GENERATED INTANGIBLES

CARRYING AMOUNT OF INTANGIBLES

Impairment loss = Carrying amount minus recoverable amount IMPAIRMENT OF ASSETS Impairment loss = Carrying amount minus recoverable amount

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