Recognition & Measurement of PPE - Ind AS - Indian Accounting Standards - Companies Law

Recognition Measurement of PPE Initial Recognition of PPE It is the time when the entity incurred the costs. Subsequent Recognition of PPE Measurement of PPE as on Balance Sheet Date Initial Recognition of PPE An item of PPE that qualifies for recognition as an asset should be measured at its COST - At the time of initial recognition of purchase of PPE or self-constructed PPE, Cost includes any directly attributable cost necessary to bring PPE to location condition intended by management. Cost of asset includes the following: - Particulars ₹ Purchase Price (Basic Price) XXX (-) Trade Discount/Rebate (XXX) + Non-Refundable taxes duties XXX + Stamp duty cost XXX + Legal Fee/Cost XXX + Initial delivery handling cost XXX + Installation Assembly Cost XXX + Professional fee/Consultant Fee/Advisors/Architects Fee XXX + Direct Material, Labour or other overhead Cost on construction XXX + Present Value of Dismantling, Decommissioning, Restoration Cost XXX + Testing Cost XXX + Site preparation cost XXX + Expenditure incurred on test runs experimental production after deducting net proceeds received on sale of items produced during test runs XXX + Any other directly attributable cost to bring the asset to the location condition necessary to operates for its intended purpose. XXX (-) Government Grant received specific to the asset as per Ind AS 20 (XXX) (-) Invest income on temporary invest of loan proceeds (XXX) Cost of PPE to be capitalised XXX Note: - Following items are to be Excluded in capitalisation of PPE General administration and other overhead expenses are usually excluded from the cost they are not related to specific asset. Cost of staff training Cost of relocation of staff/employees or reorganising part or all of the entity s operation. Cost of inauguration or opening ceremony Abnormal loss Initial operating losses Cash discount/ early settlement discount Interest cost on loan taken to buy or construct PPE (Unless allowed as per Ind AS 23). Income from incidental activities done by entity during construction of PPE but are not necessary for its construction such income will be recognised in P L and not included in PPE cost. Journal Entries At inception For PPE purchase/construction PPE A/c Dr. XXX To Bank/Payables A/c XXX To Provision for Decommissioning liability (if any) XXX At Each year end For unwinding of discount on provision for decommissioning liability Interest Expense/finance Cost Dr. XXX To Provision for decommissioning liability XXX For transferring depreciation to P L P L A/c Dr. XXX To Depreciation A/c XXX Deferred Credit Period If PPE is acquired on deferred settlement basis. i.e., payment beyond normal credit period. Any extra amount paid over the normal purchase price (Cash Price) is recognised as Interest Expense (Finance Cost) over the credit period in P L and not included in PPE Cost. If PPE is acquired in Exchange of Assets When PPE is acquired in exchange or part exchange for another asset, the asset received is usually recorded at FAIR Value Determination of cost of asset to be recorded is based on the following TWO conditions If exchange transaction has commercial substance, then recognise PPE acquired at following in priority Fair Value of Asset given up. Fair Value of Asset received. Carrying Amount of Asset given up. If exchange transaction lacks commercial substance, then recognise PPE acquired at carrying amount of asset given up.