WebcastAccountingStandardsAS 6,10&28

8/12/2019 WebcastAccountingStandardsAS 6,10&28

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S. Aparna, FCA


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Accounting Standard-6, 10 and 28


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AS 6- Depreciation Accounting

AS 10- Accounting for fixed assets

AS-28- Impairment of assets


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Applies to all depreciable assets except

Forests, plantations and similar regenerative naturalresources

Wasting assets including expenditure on the explorationfor and extraction of minerals, oils, natural gas andsimilar non-regenerative resources


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Expenditure on research and development

Goodwill

Live stock


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Depreciationis a measure of the wearing out,consumption or other loss of value of a depreciableasset arising from use, passage of time or

obsolescence through technology and market changes

Depreciation includes amortization of assets whose

useful life is predetermined


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Depreciable assetsare assets which are expected to be used duringmore than one accounting period;

have a limited useful life; and

are held by an enterprise for use in the production or supply of goodsand services, for rental to others, or for administrative purposes andnot for the purpose of sale in the ordinary course of business.


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Useful li feis either

the period over which a depreciable asset is expected to be used by theenterprise; or

the number of production or similar units expected to be obtained from the useof the asset by the enterprise.

Depreciable amountof a depreciable asset is its historical cost, or other amountsubstituted for historical cost in the financial statements, less the estimated residualvalue


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Depreciation methods should be applied consistently

Method can be changed only if required by the statute or change in accountingstandard or needed for better presentation of the financial statements

If method changed, then depreciation to be recalculated from the time the assetwas ready to use

The deficiency or surplus due to retrospective application of the changeddepreciation method should be adjusted to the profit and loss account

Change in accounting policy and its effect should be quantified and disclosed.


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The useful life of a depreciable asset should be estimated after considering thefollowing factors:

expected physical wear and tear;

obsolescence; and

legal or other limits on the use of the asset.

Where there is a revision of the estimated useful life of an asset, the unamortiseddepreciable amount should be charged over the revised remaining useful life.


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If addition is an integral part of the asset, then to bedepreciated over the useful life of the asset

If addition has a separate identity, depreciation to becalculated independently over its useful life

Changes to historical cost of asset on account of exchangerate fluctuations would impact depreciation prospectively


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The historical cost or other amount substituted for historical cost of eachclass of depreciable assets;

Total depreciation for the period for each class of assets; and

Related accumulated depreciation.

Disclosure of accounting policy for depreciation i.e depreciationmethods used; and

Depreciation rates or the useful lives of the assets, if they are different fromthe principal rates specified in the statute governing the enterprise.


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A measurement standard

Applicable to all entities

Defines fixed assets- An asset held with the intention of being used for thepurpose of producing or providing goods or services and is not held for sale inthe normal course of business

Gives guidelines on measurement of fixed assets


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Fair Market Value

Price in an open and unrestricted market

Arms length transaction between knowledgeable andwilling parties

Not under any compulsion to contract


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Gross book Value-historical cost orother amount substituted for historical

cost

Net book Value- is Gross book value

minus the accumulated depreciation


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Purchase price plus

Any attributable cost of bringing the asset to its workingcondition for its intended use

Financing costs relating to deferred credits or to borrowedfunds attributable to construction or acquisition of fixedassets


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The cost of a self-constructedfixed asset should comprisethose costs that relate directly to the specific asset and those

that are attributable to the construction activity in generaland can be allocated to the specific asset.


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Assets acquired in exchange of another asset

- at fair value of the asset that is acquired in exchange or the asset given up whichevercan be arrived at more correctly.

- Adjustment for balance cash paid or received is to be adjusted

Assets acquired in exchange of shares and securities

- at fair value of the asset that is acquired in exchange or the shares and securitie or the fairvalue of the shares and securites given up whichever can be arrived at more correctly


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Subsequent expenditures related to an item of fixedasset should be added to its book value only if theyincrease the future benefits from the existing asset

beyond its previously assessed standard of performance


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Basis of revaluation should be disclosed

Entire class of assets to be revalued or

Selection of assets for revaluation to bedone on a systematic basis


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Book value after revaluation cannot be higher than itsrealisable value.

Increase in book value to the extent of the accumulateddepreciation on that asset to be credited to profit andloss account

The balance if any to be shown as Revaluation reserve.


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A decrease in book value to the extent of increasepreviously recorded as a credit to revaluation reserveshould be adjusted to the Revaluation reserve

The balance if any should be charged to the Profit andloss account

The provisions are also applicable to fixed assets includedin financial statements at a revaluation


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Loss on disposal to the extent of an increasepreviously recorded in Revaluation reserve

to be charged directly to that account

The balance if any or the profit to be directly

charged or credited to the Profit and Lossaccount as applicable.


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Fixed assets acquired on hire-purchase basis-to be recorded at cash valueif available

Or else to be recorded assuming an appropriate rate of interest

In case of jointly owned fixed assets,the extent of the enterprises share insuch assets, and the proportion of the original cost, accumulateddepreciation and written down value should be stated in the balance sheet


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Where several fixed assets are purchased for a consolidatedprice, the consideration should be apportioned to the variousassets on a fair basis as determined by competent valuers

Self generated goodwill should not be recognised

Only when a price is paid for purchase of assets in excess oftheir net value, goodwill is to be accounted


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Gross and net book values of fixed assets at the beginning and end of anaccounting period showing additions, disposals, acquisitions and other movements

Revalued amounts substituted for historical costs of fixed assets

The method adopted to compute the revalued amounts, the nature of indicesused, the year of any appraisal made, and

whether an external valuer was involved, in case where fixed assets are stated atrevalued amounts.


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Impairment loss- Amount by which the carryingamount exceeds its recoverable amount

Net selling price- Cost of disposal in an armslength transaction

Value in use- Present value of estimated futurecash flows till its disposal on end of its useful life


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External indications

Decline in market value significantly

Significant changes with an adverse effect on the enterprise due totechnological, market, economic or legal environment

Decrease in assets value in use due to adjustment in the discount rate as aresult of increase in market interest rate or other market rates of ROI

Carrying amount of the net assets of the enterprise is more than its marketcapitalisation


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Internal indicators

Obsolescence or physical damage of an asset

Significant changes with an adverse effect on theenterprise regarding use of the asset

Decline in economic performance of the asset


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Binding sale agreement

Market price

Current bid price

Price of the most recent transaction

Based upon best information available


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Estimating the future cash inflows and outflows arising from continuing use of the assetand from its ultimate disposal

Applying the appropriate discount rate to these future cash flows

The following factors to be considered

Effect of price increase due to general inflation

Adjustment of associated risk factors

Pre-tax inflows or outflows to be considered.


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If the recoverable amount of an asset is less than its carrying amount, thecarrying amount of the asset should be reduced to its recoverable amount

That reduction is an impairment loss

Impairment loss to be recognised as an expense in the profit and lossaccount

Adjustment against revaluation reserve if existing against the sameasset

Depreciation for future periods to be adjusted as per revised carryingamount


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Reversal of impairment loss

If there are indications, that an impairment loss no longer exists, the enterprise

should estimate the recoverable amount of the asset

In case recoverable amount is higher than assets carrying amount, the impairmentloss earlier recognised may be reversed

The increased carrying amount of an asset due to a reversal of an impairment loss shouldnot exceed the carrying amount that would have been determined (net of depreciation)had no impairment loss been recognised for the asset in prior accounting periods.


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The amount of impairment loss and the reversal, if any recognised inprofit and loss account

The amount of impairment loss and its reversal, if any, recognisedagainst revaluation surplus

The events and circumstances that led to the recognition orreversal of the impairment loss

The nature and basis of recoverable amount determined forrecognising (reversing) impairment loss

Other disclosures


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WebcastAccountingStandardsAS 6,10&28