Additions made in an already depreciated asset

AS 885 views 3 replies

Zainul Tawawalla

Audit

101 Points Joined December 2008

I have come accross a situation in audit where there has been a significant addition in an asset which has been fully depreciated at the rates specified as per schedule VI. It is to be noted that the original asset is still in operation as it is not necessary that when the asset is fully depreciated, its usage also terminates. This addition forms an integral part of the asset. Due to such addition, the capacity of the asset has increased to a great extent.

Should the amount of addition be conidered as revenue or capital expenditure in the light of AS-10.

Replies (3)

vivek kumar agarwalla

Article Assistant

67 Points Joined December 2008

in my view it would be approprite to revalue the asset and also since the additions are made, it should be capitalized along with the revalued figure to be shown in the balance sheet

Shudhanshu Agrawal

Business

2570 Points Joined May 2008

I think suggestion given by vivek is correct and in this AS-10 willbe followed

Ritesh Sharma

58 Points Joined December 2008

You need to consider, whether the estimated life of the asset has undergone any change. It is quite possible that the additions to existing plant might be to give it a new lease of life. In that eventuality, it would be appropriate to find out the new estimated life of the asset after the additions. Then the new additions alongwith the existing value can be depreciated over the estimated life of the asset. When deciding depreciation, Company Rates need to be kept as minimum base.