Page 21 - 3. COMPILER QB - INDAS 16

condition necessary for it to be capable of operating in the manner intended by management.

In view of this, even though M Ltd. may not be able to recognise expenditure incurred on electric-substation
as an individual item of property, plant and equipment (where it cannot restrict others from using the

asset), expenditure incurred may be capitalised as a part of overall cost of the project.
From this, it can be concluded that, in the extant case the expenditure incurred on electric-substation should

be considered as the cost of constructing the factory and accordingly, expenditure incurred on electric-
substation should be allocated and capitalised as part of the items of property, plant and equipment of the

factory.

Depreciation
As per Ind AS 16, each part of an item of property, plant and equipment with a cost that is significant in

relation to the total cost of the item shall be depreciated separately.
Further, Ind AS 16 provides that, if these assets have a useful life which is different from the useful life of

the item of property, plant and equipment to which they relate, it should be depreciated separately.
However, if these assets have a useful life and the depreciation method that are the same as the useful life

and the depreciation method of the item of property, plant and equipment to which they relate, these
assets may be grouped in determining the depreciation charge. Nevertheless, if it has been included in the

cost of property, plant and equipment as a directly attributable cost, it will be depreciated over the useful
lives of the said property, plant and equipment.

The useful lives of electric-substation should not exceed that of the asset to which it relates.

Presentation
Electric-substation should be presented within the class of asset to which they relate ie factory.

Q14. (Nov. 20 FR Old Syllabus - 4 Marks) - Same as Q.8
Grey Ltd. had purchased a machinery on 01.04.2011 for Rs. 30 Lakhs, which is reflected in its books at

written down value of Rs. 17.5 lakhs on 01.04.2016. The Company has estimated an upward revaluation of
10% on 01.04.2016 to arrive at the fair value of the asset.
On 01.04.2018, the machinery was revalued downward by 15% and the company also re-estimated the
machinery‖s remaining life to be 8 years. On 31.03.2020 the machinery was sold for Rs. 9,35,000. The

company charges depreciation on SLM.
Prepare machinery account in the books of Grey Ltd. to record the above transaction.
SOLUTION

Machinery A/c
Date Particulars Amount Date Particulars Amount
1.4.11 To Bank / Vendor 30,00,000 31.3.12 By Depreciation 2,50,000
(W.N.1)

31.3.12 By Balance c/d 27,50,000

3. 20