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DifferencebetweenIndAS16,AS10andAS6CAClub
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Aug18,2015
Accounting
Ind AS 16 deals with accounting for property, plant and equipment which are
coveredbyexistingAS10,AccountingforFixedAssets.IndAS16alsodeals
with depreciation of property, plant and equipment which is presently covered
byAS6,DepreciationAccounting.Therefore,themajordifferencesmentioned
belowarebetweentheIndAS16andexistingAS10andexistingAS6.
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DifferencebetweenIndAS16,AS10andAS6CAClub
expenditure.AsperexistingAS10,subsequentexpendituresrelatedtoanitem
of fixed asset are capitalised only if they increase the future benefits from the
existing asset beyond its previously assessed standard of performance.
Paragraph7ofIndAS16andParagraph12ofexistingAS10ivIndAS16
requiresthatmajorsparepartsqualifyasproperty,plantandequipmentwhen
anentityexpectstousethemduringmorethanoneperiodandwhentheycan
beusedonlyinconnectionwithanitemofproperty,plantandequipment.
As per existing AS 10, only those spares are required to be capitalised which
canbeusedonlyinconnectionwithafixedassetandwhoseuseisexpectedto
beirregular.Paragraph8ofIndAS16andParagraph8.2ofexistingAS10
CBEC
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vIndAS16isbasedonthecomponentapproach.Underthisapproach,each
major part of an item of property plant and equipment with a cost that is
significantinrelationtothetotalcostoftheitemisdepreciatedseparately.Asa
corollary, cost of replacing such parts is capitalised, if recognition criteria are
metwithconsequentderecognitionofcarryingamountofthereplacedpart.The
cost of replacing those parts which have not been depreciated separately is
alsocapitalisedwiththeconsequentderecognitionofthereplacedparts.Ifitis
not practicable for an entity to determine the carrying amount of the replaced
part,itmayusethecostofthereplacementasanindicationofwhatthecostof
thereplacedpartwasatthetimeitwasacquiredorconstructed.
Existing AS 10, however, does not mandatorily require full adoption of the
componentapproach.Itrecognisesthesaidapproachinonlyoneparagraphby
statingthataccountingforatangiblefixedassetmaybeimprovediftotalcost
thereofisallocatedtoitsvariousparts.Apartfromthis,neitherexistingAS10
nor existing AS 6 deals with the aspects such as separate depreciation of
components, capitalising the cost of replacement, etc. Paragraphs 43, 70 of
IndAS16andparagraph8.3ofExistingAS10
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viIndAS16requiresthatthecostofmajorinspectionsshouldbecapitalised
withconsequentderecognitionofanyremainingcarryingamountofthecostof
the previous inspection. Existing AS 10 does not deal with this aspect.
Paragraph14ofIndAS16
viiInlinewiththerequirementofIndAS37Provisions,ContingentLiabilities
andContingentAssets,forcreatingaprovisiontowardsthecostsofdismantling
andremovingtheitemofpropertyplantandequipmentandrestoringthesiteon
which it is located at the time the item is acquired or constructed, Ind AS 16
requires that the initial estimate of the costs of dismantling and removing the
itemandrestoringthesiteonwhichitislocatedshouldbeincludedinthecost
oftherespectiveitemofpropertyplantandequipment.ExistingAS10doesnot
containanysuchrequirement.Paragraphs16cand18ofIndAS16
viii Ind AS 16 requires an entity to choose either the cost model or the
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revaluationmodelasitsaccountingpolicyandtoapplythatpolicytoanentire
classofpropertyplantandequipment.Itrequiresthatunderrevaluationmodel,
revaluation be made with reference to the fair value of items of property plant
andequipment.Italsorequiresthatrevaluationsshouldbemadewithsufficient
regularitytoensurethatthecarryingamountdoesnotdiffermateriallyfromthat
whichwouldbedeterminedusingfairvalueatthebalancesheetdate.
ExistingAS10recognisesrevaluationoffixedassets.However,therevaluation
approach adopted therein is ad hoc in nature, as it does not require the
adoptionoffairvaluebasisasitsaccountingpolicyorrevaluationofassetswith
regularity. It also provides an option for selection of assets within a class for
revaluation on systematic basis. Paragraphs 29 and 31 of Ind AS 16 and
paragraph27ofexistingAS10
ixIndAS16providesthattherevaluationsurplusincludedinequityinrespect
ofanitemofpropertyplantandequipmentmaybetransferredtotheretained
earnings when the asset is derecognised. This may involve transferring the
wholeofthesurpluswhentheassetisretiredordisposedof.However,someof
thesurplusmaybetransferredastheassetisusedbyanentity.Insuchacase,
the amount of the surplus transferred would be the difference between the
depreciation based on the revalued carrying amount of the asset and
depreciationbasedonitsoriginalcost.Transfersfromrevaluationsurplustothe
retainedearningsarenotmadethroughprofitorloss.Paragraph41ofIndAS
16
Ascomparedtotheabove,neitherexistingAS10norexistingAS6dealswith
the transfers from revaluation surplus. To deal with this aspect, the Institute
issued a Guidance Note on Treatment of Reserve Created on Revaluation of
Fixed Assets. The Guidance Note provides that if a company has transferred
thedifferencebetweentherevaluedfigureandthebookvalueoffixedassetsto
theRevaluationReserveandhaschargedtheadditionaldepreciationrelated
thereto to its profit and loss account, it is possible to transfer an amount
equivalenttoaccumulatedadditionaldepreciationfromtherevaluationreserve
to the profit and loss account or to the general reserve as the circumstances
maypermit,providedsuitabledisclosureismadeintheaccounts.However,the
saidGuidanceNotealsorecognisesthatitwouldbeprudentnottochargethe
additional depreciation arising due to revaluation against the revaluation
reserve.
xWithregardtoselfconstructedassets,IndAS16,specificallystatesthatthe
cost of abnormal amounts of wasted material, labour, or other resources
incurredintheconstructionofanassetisnotincludedinthecostoftheassets.
Existing AS 10 while dealing with selfconstructed fixed assets does not
mentionthesame.Paragraph22ofIndAS16
xiIndAS16providesthatthecostofanitemofproperty,plantandequipment
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xviiiIndAS16specificallyprovidesthatgainsarisingonderecognitionofan
item of property, plant and equipment should not be treated as revenue as
definedinAS9.ExistingAS10issilentonthisaspect.Paragraph68ofIndAS
16
xixIndAS16dealswiththesituationwhereentitiesholdtheitemsofproperty,
plant and equipment for rental to others and subsequently sell the same. No
suchprovisionisthereinexistingAS10.Paragraph68AofIndAS16
xx Ind AS 16 does not deal with the assets held for sale because the
treatmentofsuchassetsiscoveredinIndAS105NoncurrentAssetsHeldfor
Sale and Discontinued Operations. Existing AS 10 deals with accounting for
itemsoffixedassetsretiredfromactiveuseandheldforsale.
xxi Ind AS 16 requires that if property, plant and equipment is acquired in
exchange for a nonmonetary asset, it should be recognised at its fair value
unlessatheexchangetransactionlackscommercialsubstanceorbthefair
value of neither the asset received nor the asset given up is reliably
measurable.Theexistingstandardrequiresthatwhenafixedassetisacquired
inexchangeforanotherasset,itscostisusuallydeterminedbyreferencetothe
fairmarketvalueoftheconsiderationgiven.Itmaybeappropriatetoconsider
also the fair market value of the asset acquired if this is more clearly evident.
Existing AS 10 also prescribes an alternative accounting treatment that is
sometimes used for an exchange of assets, particularly when the assets
exchangedaresimilar,istorecordtheassetacquiredatthenetbookvalueof
the asset given up in each case an adjustment is made for any balancing
receiptorpaymentofcashorotherconsideration.
xxiiIndAS16includesAppendixAwhichaddresseshowthechangesinthe
measurement of an existing decommissioning, restoration and similar liability
that result from changes in the estimated timing or amount of the outflow of
resources embodying economic benefits required to settle the obligation, or a
changeinthediscountrate,shallbeaccountedfor.
xxiii The disclosure requirements of Ind AS 16 are significantly elaborate as
comparedtoAS10/AS6.
Source:www.icai.org
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