A Comprehensive Guide to Property, Plant & Equipment Management

MCQ SELF CHALLENGE #0099 ON IND AS-16 PROPERTY, PLANT & EQUIPMENT IND AS-16 Property, Plant & Equipment

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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 recognized 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 recognized 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 6 of Ind A5 16 these items at the definition of property, plant and equipment and required to be capitalized as PPE on the date of transition to Ind AS.

A. The entity should apply Ind AS Le Ind AS 16 applicable retrospectively to measure the amount that will be recognized 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 recognized 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 recognize an asset as PPE whose recognition is required by Ind AS on the date of transition

D. None of the Above

Answer MCQ Self Challenge #0099

This post of MCQ is on provisions relating to Indian Accounting Standard 16. (IND AS 163 Property, Plant & Equipment.

Answer MCQ 99.1:

B) The spare part is required to be recognized 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 99.1:

• 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 recognized as property, plant and equipment separately from the equipment
• If that spare part does not meet the definition and recognition criteria as coed above that spare part is to be recognized as inventory. The depreciation on such an item of spare part will begin when the asset is available for use le 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 site 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 recognized 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 ASL. IND AS 16 applicable retrospectively to measure the amount that will be recognized for such spare parts on the date of transition to IND AS.

Practical Analysis for MCQ 99.2:

• Paragraphs 05 to 086 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 07AA of Ind AS 101 provides an option to continue the carrying values for all of its property, plant and equipment as recognized 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 recognized as fixed assets, ie, PPE in the previous GAAP
• Paragraph D7AA does not prevent a company to recognize 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 Le Ind AS 16 applicable retrospectively to measure the amount that will be recognized for such spare parts on the date of transition to Ind AS

(Disclaimer: The objective of the MCO 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)

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