MCQ Self Challenge #0099 on IND AS-16 Property, Plant & Equipment

IND AS-16 Property, Plant & Equipment

Dear Professional Seniors & Friends,
Warm Greeting!

Here is the Next post of #MCQ on concept based practical professional knowledge on IND AS-16 Property, Plant& Equipment in a unique manner to be self answered by participants. The detailed answer of these MCQs shall be posted next day for the self assessment of the participants.

MCQ 99.1: A Company has a spare part, which it terms as ‘insurance spare’, is required to be used along with equipment and meets the definition of property, plant and equipment.

A. The spare part is required to be recognised as part of that equipment and the depreciation is required to be calculated along with the equipment for which it has been used.
B. The spare part is required to be recognised as property, plant and equipment separately from the equipment and the depreciation is required to be calculated separately for that spare part
C. The spare part should be written off in Profit and Loss Account
D. None of the Above

MCQ 99.2: Wipro Ltd. is covered under Ind AS roadmap and needs to comply Ind AS from financial year 2017-18. It has recorded certain spare parts in its previous GAAP financial statements as a part of inventory. As per paragraph 8 of Ind AS 16, these items meet the definition of ‘property, plant and equipment’ and required to be capitalised as PPE on the date of transition to Ind AS.

A. The entity should apply Ind AS i.e. Ind AS 16 applicable retrospectively to measure the amount that will be recognised for such spare parts on the date of transition to Ind AS.
B. It can continue the carrying values of all its spare parts as recognised in the financial statements as at the date of transition to Ind ASs, measured as per the previous GAAP and use that as its deemed cost as at the date of transition if there is no change in its functional currency
C. Ind As prevent a company to recognise an asset as PPE whose recognition is required by Ind AS on the date of transition
D. None of the Above

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CA Sanjay Kumar Agrawal
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Answer MCQ Self Challenge #0099

Dear Professional Seniors & Friends,

Warm Greetings!

This post of MCQ is on provisions relating to Indian Accounting Standard 16 (IND AS 16) Property, Plant & Equipment.

Answer MCQ 99.1: B. The spare part is required to be recognised as property, plant and equipment separately from the equipment and the depreciation is required to be calculated separately for that spare part.

Answer MCQ 99.2: A.  The entity should apply Ind AS i.e. Ind AS 16 applicable retrospectively to measure the amount that will be recognised for such spare parts on the date of transition to Ind AS.

Practical Analysis for MCQ 99.1:

• If an item of spare part meets the definition of property, plant and equipment’ as mentioned above and satisfies the recognition criteria as per paragraph 7 of Ind AS 16, such an item of spare part has to be recognised as property, plant and equipment separately from the equipment.
• If that spare part does not meet the definition and recognition criteria as cited above that spare part is to be recognised as inventory. The depreciation on such an item of spare part will begin when the asset is available for use i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.
• In case of a spare part, as it may be readily available for use, it may be depreciated from the date of purchase of the spare part. In determination of the useful life of the spare part, the life of the machine in respect of which it can be used can be one of the determining factors.
• Based on the above analysis Answer to MCQ 99.1: The spare part is required to be recognised as property, plant and equipment separately from the equipment and the depreciation is required to be calculated separately for that spare part.

Practical Analysis for MCQ 99.2:

• Paragraphs D5 to D8B provide various deemed cost exemptions that an entity may elect to use on the date of transition. In this regard, it is pertinent to note that paragraph D7AA of Ind AS 101 provides an option to continue the carrying values for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind ASs, measured as per the previous GAAP and use that as its deemed cost as at the date of transition if there is no change in its functional currency. However, the above exemption cannot be used for such spare parts in the given case since the same were not recognised as fixed assets, i.e., PPE, in the previous GAAP.
• Paragraph D7AA does not prevent a company to recognise an asset as PPE whose recognition is required by Ind AS on the date of transition.
• Basis of above analysis Answer to MCQ 99.2 The entity should apply Ind AS i.e. Ind AS 16 applicable retrospectively to measure the amount that will be recognised for such spare parts on the date of transition to Ind AS.

(Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen, by change of facts, the answer may be different. Please do not treat this as professional opinion; you can definitely have your own opinion.)

Sincere Regards!

CA Sanjay Kumar Agrawal

Mobile: 9810116321

To access MCQ posts regularly, please Join Telegram Channel:
https://t.me/caSanjayKumarAgrawal

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