Page 3 - 3. COMPILER QB - INDAS 16

SOLUTION

The annual depreciation charges prior to the change in useful life were:

Buildings Rs1,50,00,000/15 = Rs 10,00,000
Plant and machinery Rs1,00,00,000/10 = Rs 10,00,000
Furniture and fixtures Rs 35,00,000/7 = Rs5,00,000

Total = Rs 25,00,000 (A)

The revised annual depreciation for the year ending 31st March 20X4, would be:

Buildings [1,50,00,000 - (10,00,000 x 3)] / 10 Rs. 12,00,000
Plant and machinery [1,00,00,000 - (10,00,000 x 3)] / 7 Rs. 10,00,000

Furniture and fixtures [35,00,000 - (5,00,000 x 3)] / 5 Rs. 4,00,000
Total = Rs 16,00,000 (B)

The impact on Statement of Profit and Loss for the year ending 31st March, 20X4 = [A-B]
= Rs. 26,00,000 – Rs. 25,00,000 = Rs. 1,00,000

This is a change in accounting estimate which is adjusted prospectively in the period in which the estimate is
amended and, if relevant, to future periods if they are also affected. Accordingly, from 20X4-20X5 onward,

excess of Rs1,00,000 will be charged in the Statement of Profit and Loss every year till the time there is any

further revision.

Q2 (Nov. 18)

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On 1 October, 2017, A Ltd. completed the construction of a power generating facility. The total construction cost
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was Rs. 2,00,00,000. The facility was capable of being used from 1 October, 2017 but A Ltd. did not bring the
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facility into use until 1 January, 2018. The estimated useful life of the facility at 1 October, 2017 was 40 years.
Under legal regulations in the jurisdiction in which A Ltd. operates, there are no requirements to restore the land
on which power generating facilities stand to its original state at the end of the useful life of the facility.
However, A Ltd. has a reputation for conducting its business in an environmentally friendly way and has

previously chosen to restore similar land even in the absence of such legal requirements. The directors of A Ltd.

estimated that the cost of restoring the land in 40 years‖ time (based on prices prevailing at that time) would
be Rs. 1,00,00,000. A relevant annual discount rate to use in any discounting calculations is 5%. When the

annual discount rate is 5%, the present value of Rs. 1 receivable in 40 years‖ time is approximately 0.142.
Analyze and present how the above events would be reported in the financial statements of A Ltd. for the year

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ended 31 March, 2018as per Ind AS.
SOLUTION

(All figures are Rs in ’000.)

The power generating facility should be depreciated from the date it is ready for use, rather than when it would
actually start being used. In this case, the facility should be depreciated from 1st October, 2017.

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