S.

Aparna, FCA

Accounting Standard-6, 10 and 28
AS 6- Depreciation Accounting
AS 10- Accounting for fixed assets
AS-28- Impairment of assets
Applies to all depreciable assets except
Forests, plantations and similar regenerative natural
resources
Wasting assets including expenditure on the exploration
for and extraction of minerals, oils, natural gas and
similar non-regenerative resources
Expenditure on research and development
Goodwill
Live stock
Depreciation is a measure of the wearing out,
consumption or other loss of value of a depreciable
asset arising from use, passage of time or
obsolescence through technology and market changes
Depreciation includes amortization of assets whose
useful life is predetermined
Depreciable assets are assets which are expected to be used during
more than one accounting period;
have a limited useful life; and
are held by an enterprise for use in the production or supply of goods
and services, for rental to others, or for administrative purposes and
not for the purpose of sale in the ordinary course of business.
Useful life is either
the period over which a depreciable asset is expected to be used by the
enterprise; or
the number of production or similar units expected to be obtained from the use
of the asset by the enterprise.
Depreciable amount of a depreciable asset is its historical cost, or other amount
substituted for historical cost in the financial statements, less the estimated residual
value
Depreciation methods should be applied consistently
Method can be changed only if required by the statute or change in accounting
standard or needed for better presentation of the financial statements
If method changed, then depreciation to be recalculated from the time the asset
was ready to use
The deficiency or surplus due to retrospective application of the changed
depreciation method should be adjusted to the profit and loss account
Change in accounting policy and its effect should be quantified and disclosed.
The useful life of a depreciable asset should be estimated after considering the
following 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 unamortised
depreciable amount should be charged over the revised remaining useful life.
If addition is an integral part of the asset, then to be
depreciated over the useful life of the asset
If addition has a separate identity, depreciation to be
calculated independently over its useful life
Changes to historical cost of asset on account of exchange
rate fluctuations would impact depreciation prospectively
The historical cost or other amount substituted for historical cost of each
class 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 depreciation
methods used; and
Depreciation rates or the useful lives of the assets, if they are different from
the principal rates specified in the statute governing the enterprise.
A measurement standard
Applicable to all entities
Defines fixed assets- An asset held with the intention of being used for the
purpose of producing or providing goods or services and is not held for sale in
the normal course of business
Gives guidelines on measurement of fixed assets
Fair Market Value
Price in an open and unrestricted market
Arms length transaction between knowledgeable and
willing parties
Not under any compulsion to contract
Gross book Value-historical cost or
other amount substituted for historical
cost
Net book Value- is Gross book value
minus the accumulated depreciation
Purchase price plus
Any attributable cost of bringing the asset to its working
condition for its intended use
Financing costs relating to deferred credits or to borrowed
funds attributable to construction or acquisition of fixed
assets
The cost of a self-constructed fixed asset should comprise
those costs that relate directly to the specific asset and those
that are attributable to the construction activity in general
and can be allocated to the specific asset.
Assets acquired in exchange of another asset
- at fair value of the asset that is acquired in exchange or the asset given up whichever
can 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 fair
value of the shares and securites given up whichever can be arrived at more correctly
Subsequent expenditures related to an item of fixed
asset should be added to its book value only if they
increase the future benefits from the existing asset
beyond its previously assessed standard of performance
Material items retired from active use and held for disposal - stated at the lower of
their net book value and net realizable value
Shown separately in the financial statements
Eliminated from the financial statements on disposal or when no further benefit
is expected from its use and disposal.
Losses arising from the retirement or gains or losses arising from disposal of fixed
asset, which is carried at cost, should be recognized in the profit and loss
statement.
Basis of revaluation should be disclosed
Entire class of assets to be revalued or
Selection of assets for revaluation to be
done on a systematic basis
Book value after revaluation cannot be higher than its
realisable value.
Increase in book value to the extent of the accumulated
depreciation on that asset to be credited to profit and
loss account
The balance if any to be shown as Revaluation reserve.
A decrease in book value to the extent of increase
previously recorded as a credit to revaluation reserve
should be adjusted to the Revaluation reserve
The balance if any should be charged to the Profit and
loss account
The provisions are also applicable to fixed assets included
in financial statements at a revaluation
Loss on disposal to the extent of an increase
previously 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 Loss
account as applicable.
Fixed assets acquired on hire-purchase basis-to be recorded at cash value
if 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 in
such assets, and the proportion of the original cost, accumulated
depreciation and written down value should be stated in the balance sheet
Where several fixed assets are purchased for a consolidated
price, the consideration should be apportioned to the various
assets 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 of
their net value, goodwill is to be accounted
Gross and net book values of fixed assets at the beginning and end of an
accounting 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 indices
used, the year of any appraisal made, and
whether an external valuer was involved, in case where fixed assets are stated at
revalued amounts.
Impairment loss- Amount by which the carrying
amount exceeds its recoverable amount
Net selling price- Cost of disposal in an arms
length transaction
Value in use- Present value of estimated future
cash flows till its disposal on end of its useful life
External indications
Decline in market value significantly
Significant changes with an adverse effect on the enterprise due to
technological, market, economic or legal environment
Decrease in assets value in use due to adjustment in the discount rate as a
result 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 market
capitalisation
Internal indicators
Obsolescence or physical damage of an asset
Significant changes with an adverse effect on the
enterprise regarding use of the asset
Decline in economic performance of the asset
Recoverable amount is Net selling price or value in use
whichever is higher
If any one of the calculations is higher than the carrying
amount, there is no need to calculate the other
No impairment if either of the amounts are greater than the
carrying amount
Binding sale agreement
Market price
Current bid price
Price of the most recent transaction
Based upon best information available
Estimating the future cash inflows and outflows arising from continuing use of the asset
and 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.
If the recoverable amount of an asset is less than its carrying amount, the
carrying 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 loss
account
Adjustment against revaluation reserve if existing against the same
asset
Depreciation for future periods to be adjusted as per revised carrying
amount
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 impairment
loss earlier recognised may be reversed
The increased carrying amount of an asset due to a reversal of an impairment loss should
not 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.
The amount of impairment loss and the reversal, if any recognised in
profit and loss account
The amount of impairment loss and its reversal, if any, recognised
against revaluation surplus
The events and circumstances that led to the recognition or
reversal of the impairment loss
The nature and basis of recoverable amount determined for
recognising (reversing) impairment loss
Other disclosures