Accounting Standard 10
Accounting Standard 10 prescribes the accounting treatment for property, plant, and equipment to users of the financial statements this will help them to discern information about an investment that is made by the enterprise. The decision about its property, plant, and equipment and the changes in that investment.
These issues in accounting for property, plant, and equipment which help in the recognition of the assets, the determination of their carrying amounts, and the depreciation charges and impairment losses are recognized in relation to them.
The Accounting Standard should be applied in the accounting for property, plant, and equipment while another Accounting Standard requires a different accounting treatment. This Accounting Standard does not apply to:
Biological assets that are related to agricultural activity else than the bearer plants.
Applies to wasting assets which includes mineral rights, expenditure on the exploration for and extraction of the minerals, oil, natural gas, and similar other non-regenerative resources.
Other than these, Accounting Standards may require recognition of an item or property, plant, and equipment which will be based on an approach that is different from the Standard.
For example, AS 19, in Leases, requires an enterprise that evaluates recognition of an item of the leased property, plant, and equipment on the basis of the transfer of risks and rewards. However, in the rest of other cases different aspects of the accounting treatment for these assets which includes depreciation, are prescribed by this Standard. Also, investment property, which is defined in AS 13, accounting for Investments, should be accounted for in accordance with the cost model prescribed in this standard.
AS 10 Property Plant Equipment
Now we know that Accounting Standard 10 deals with Property, Plant, and Equipment (PPE). The basic purpose of this standard is to lay down or specify the accounting treatment for Property, Plant, and Equipment.
This is to enable the users of the Financial Statement to understand the investment that is made by the business entity in its property, plant, and equipment and the respective changes made therein.
The main challenges which account for property, plant, and equipment include:
Recognition of the assets.
Calculating the carrying amounts of the assets.
Determining the depreciation charges and the impairment losses in respect of the property, plant, and equipment.
Application of AS 10
AS 10 is to be applied when accounting for property, plant, and equipment. However, this may not be applied in cases where another accounting standard allows for different accounting treatment for the property, plant, and equipment.
In the following cases the AS 10 is not applied:
In biological assets like live animals or plants pertaining to the agricultural activity other than bearing plants.
AS 10 applies to the bearer plants but is not applicable to the produce on those bearer plants.
Recognition of Assets
The cost assigned to an asset that comes under the Property, Plant, and Equipment as per the AS 10 is identified as an asset only if:
The future economic benefits are predicted to arise from such an asset that would come to the business unit.
The cost of a particular asset is to be reliably measured.
Also, items like - spare parts, stand-by-equipment, and servicing equipment are considered as the Property, Plant, and Equipment if that item meets the criteria of PPE as according to AS 10. Other than this, if the item does not fulfil then such items are categorized under inventory.
Further, AS 10 does not specify any unit for measurement for an item of PPE. Thus, the accounting professionals are required to make use of proper judgment to recognize an item as PPE under specific circumstances.
FAQs on Depreciation - AS 10
Q1. What is Depreciation?
Ans. Depreciation is a type of accounting method which is devised for allocating the cost of a tangible or physical asset over its useful life or its life expectancy. Depreciation indicates how much of an asset's value has been used up in its life. Depreciating assets helps the companies to earn revenue from an asset while keeping a check on the portion of its cost each year while the asset is in use. If not taken into account, it can greatly affect the profits.
Q2.What is PPE?
Ans. The property, Plant, and Equipment is the full form of the abbreviated term PPE. Property, plant, and equipment (PP&E) are the long-term assets that are very vital to business operations that are not easily converted into cash. Property, plant, and equipment are tangible assets, meaning that they are physical in nature or can be touched. The total value of the PP&E can range from very low to extremely high compared to the total assets.
Q3. What are ‘Assets’?
Ans. ‘Asset’ signifies all kinds of resources that help generate revenue as well as receivables. Assets are resources that often help to reduce expenses, and enhance profitability and generate robust cash flow as they help to convert raw materials that can be converted into cash or cash equivalents.
Q4. What are Bearer Plants?
Ans. Bearer plant means a plant which is used in the production of agricultural products and this is anticipated to give produce more than 12 months, and also this has a remote chance of being sold as agricultural produce except for incidental scraps.