30 January 2009
My client is a large power generating co. having two power generating unit. one of the unit was declared commercial and hence provisionally capitalised in 2005. The contracts given for construction/ supply were not finally settled at that time and therefore their final values were estimated and provisional value were arrived at for capitalisation of project assets.
During the current year, the contracts have been finally closed and actual values have been arrived at.
The final values of the contracts is less than the values at which the projects assets were capitalised. The difference between the final value of the contracts and the estimated value of the contracts at which the assets were capitalised is Rs.21.18 crores which is 0.96% of the total project assets capitalised.
my query is whether the assets would be de-capitalised and depreciation from the 2005 to till date would be treated as "prior period item" or it would be treated change in accounting estimate and deprecitaion would be provided over the remaining useful life of the assets capitalised on its reduced value?
My stand is that since it is only a change in accounting estimates considering AS-5 and AS-10, depreciation should be provided over the remaining useful life of the assets on its reduced value(by Rs.21.18 crores) and there is no need to recalcuate and provide depreciation from 2005 to till date as "prior period item."
CAclubindia
