Differences between Ind AS 16, AS 10 and AS 6

7/14/2016
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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.
Difference between Ind AS 16 on Property,

Plant and Equipment, existing AS 10 on
Accounting for Fixed Assets and AS 6 on
Depreciation Accounting
i Existing AS 10 specifically excludes accounting for real estate developers
fromitsscope,whereasIndAS16doesnotexcludesuchdevelopersfromits
scope.
iiIndAS16,apartfromdefiningthetermproperty,plantandequipment,also
lays down the following criteria which should be satisfied for recognition of
itemsofproperty,plantandequipment:
aitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwill
flowtotheentity,and
bthecostoftheitemcanbemeasuredreliably.
Existing AS 10 does not lay down any specific recognition criteria for
recognition of a fixed asset. As per the standard, any item which meets the
definitionofafixedassetshouldberecognisedasafixedasset.
iiiAsperIndAS16,initialcostsaswellasthesubsequentcostsareevaluated
on the same recognition principles to determine whether the same should be
recognisedasanitemofproperty,plantandequipment.ExistingAS10onthe
other hand, prescribes separate recognition principles for subsequent
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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
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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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is the cash price equivalent at the recognition date. If payment is deferred

beyond normal credit terms, the difference between the cash price equivalent
andthetotalpaymentisrecognisedasinterestovertheperiodofcreditunless
suchinterestiscapitalisedinaccordancewithIndAS16.Similarly,theconcept
of cash price equivalent has been followed in case of disposal of fixed assets
also.ExistingAS10doesnotcontainthisrequirement.Paragraphs23and72
ofIndAS16
xiiExistingAS10specificallydealswiththefixedassetsownedbytheentity
jointlywithothers.IndAS16doesnotspecificallydealwiththisaspectasthese
would basically be covered by Ind AS 31 as jointly controlled assets.
Paragraph15.2ofexistingAS10
xiii Existing AS 10 specifically deals with the situation where several assets
arepurchasedforaconsolidatedprice.Itprovidesthattheconsiderationshould
beapportionedtothevariousassetsonthebasisoftheirrespectivefairvalues.
However, Ind AS 16 does not specifically deal with this situation. Paragraph
15.3ofexistingAS10
xiv Ind AS 16 requires that the residual value and useful life of an asset be
reviewed at least at each financial yearend and, if expectations differ from
previousestimates,thechangesshouldbeaccountedforasachangeinan
accounting estimate in accordance with AS 5. Under existing AS 6, such a
reviewisnotobligatoryasitsimplyprovidesthatusefullifeofanassetmaybe
reviewedperiodically.Paragraph51ofIndAS16
xvIndAS16requiresthatthedepreciationmethodappliedtoanassetshould
be reviewed at least at each financial yearend and, if there has been a
significant change in the expected pattern of consumption of the future
economic benefits embodied in the asset, the method should be changed to
reflect the changed pattern. In existing AS 6, change in depreciation method
canbemadeonlyiftheadoptionofthenewmethodisrequiredbystatuteorfor
compliance with an accounting standard or if it is considered that the change
would result in a more appropriate preparation or presentation of the financial
statements.Paragraph61ofIndAS16
xvi Ind AS 16 requires that change in depreciation method should be
considered as a change in accounting estimate and treated accordingly. In
existing AS 6, it is considered as a change in accounting policy and treated
accordingly.Paragraph61ofIndAS16
xvii Ind AS 16 requires that compensation from third parties for items of
property, plant and equipment that were impaired, lost or given up should be
included in the statement of profit and loss when the compensation becomes
receivable. Existing AS 10 does not specifically deal with this aspect.
Paragraph65ofIndAS16
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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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