Page 167 - CA Inter Audit PARAM

CA Ravi Taori
QNO-- PPE - Elements of Cost New Course – (S24E)
AIFS.31.40 Bhaskar CNO – AIFS-P2.020

JB Limited has invested huge sums of money on establishment of new Property, Plant and Equipment during
the year under audit. They have incurred an amount of ₹ 5,70,000/- on dismantling of an old plant, which
had become obsolete, so that a new plant can be set up at the existing location. The Auditor is in the process

of verifying the cost incurred towards addition to Property, Plant and Equipment. What should be the
accounting treatment of the amount spent on dismantling of old plant in the financial statements? Which
elements of cost should be considered for valuing Property, Plant and Equipment?
Answer In the given situation, JB Limited has invested huge sums of money on establishment of new Property, Plant
and Equipment and incurred an amount of ₹ 5,70,000 on dismantling of old plant which had become
obsolete so that new plant can be set up at the existing location. An item of property, plant and equipment
that qualifies for recognition as an asset should be measured at its cost. The costs of dismantling, removing
the item and restoring the site on which it is located referred to as decommissioning will form part of the
new Property, Plant and Equipment.

Elements of Cost: The cost of an item of property, plant and equipment comprises:

(i) Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates.

(ii) Any costs directly attributable to bringing the asset to the location and condition necessary for it to
be capable of operating in the manner intended by management.

(iii) The initial estimate of the costs of dismantling, removing the item and restoring the site on which it is
located, referred to as decommissioning, restoration and similar liabilities’, the obligation for which
an enterprise incurs either when the item is acquired or as a consequence of having used the item
during a particular period for purposes other than to produce inventories during that period.

QNO— Disclosure of Capital Work In Progress New Course – (SM25)
AIFS.31.50 Bhaskar CNO - AIFS-P2.030
You are the statutory auditor of Jupiter Ltd. for the FY 2022-23. During the course of audit, you noticed
that the company has PPE under construction i.e. Capital Work in Progress. What disclosures should the
company give with respect to the ageing schedule of such capital work in progress as required by
Schedule III to the Companies Act, 2013?
Answer Capital-Work-in Progress
a) For Capital-work-in progress, following ageing schedule shall be given:
CWIP ageing schedule

(Amount in ₹)
Amount in CWIP for a period of Total*
CWIP Less than 1-2 2-3 More than
1 year years year 3 years
Projects in Progress
Projects temporarily suspended
*Total shall tally with CWIP amount in the balance sheet.

b) For capital-work-in progress, whose completion is overdue or has exceeded its cost compared to
its original plan, following CWIP completion schedule shall be given**:
(Amount in ₹)
To be completed in
CWIP Less than 1 1-2 years 2-3 year More than 3
year years
Project 1
Project 2

**Details of projects where activity has been suspended shall be given separately

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