Q :-1 Entity A, a supermarket chain, is renovating one of its major stores.

The store will have more

Q :-2 Entity A has an existing freehold factory property, which it intends to knock down and redevelop.
During the redevelopment period the company will move its production facilities to another (temporary)
site. The following incremental costs will be incurred:

1. Setup costs of ` 5,00,000 to install machinery in the new location.

2. Rent of ` 15,00,000

3. Removal costs of ` 3,00,000 to transport the machinery from the old location to the temporary
location.

Can these costs be capitalised into the cost of the new building?

Q :-3 Omega Ltd. contracted with a supplier to purchase machinery which is to be installed in its one
department in three months' time. Special foundations were required for the machinery which were to
be prepared within this supply lead time. The cost of the site preparation and laying foundations were `
1,40,000. These activities were supervised by a technician during the entire period, who is employed for
this purpose of ` 45,000 per month. The machine was purchased at ` 1,58,00,000 and ` 50,000
transportation charges were incurred to bring the machine to the factory site. An Architect was
appointed at a fee of ` 30,000 to supervise machinery installation at the factory site. You are required to
ascertain the amount at which the Machinery should be capitalized.

Q :-4 Entity A, which operates a major chain of supermarkets, has acquired a new store location. The
new location requires significant renovation expenditure. Management expects that the renovations will
last for 3 months during which the supermarket will be closed. Management has prepared the budget
for this period including expenditure related to construction and remodelling costs, salaries of staff who
will be preparing the store before its opening and related utilities costs. What will be the treatment of
such expenditures?

Q :-5 An amusement park has a 'soft' opening to the public, to trial run its attractions. Tickets are sold at
a 50% discount during this period and the operating capacity is 80%. The official opening day of the
amusement park is three months later. Management claim that the soft opening is a trial run necessary
for the amusement park to be in the condition capable of operating in the intended manner. Accordingly,
the net operating costs incurred should be capitalised. Comment.

Q :-6 Entity A exchanges land with a book value of ` 10,00,000 for cash of ` 20,00,000 and plant and
machinery valued at ` 25,00,000. What will be the measurement cost of the assets received. (Consider
that the transaction has commercial substance)?
Q :-7 Entity A exchanges car X with a book value of ` 13,00,000 and a fair value of ` 13,25,000 for cash of `
15,000 and car Y which has a fair value of ` 13,10,000. The transaction lacks commercial substance as the
company’s cash flows are not expected to change as a result of the exchange. It is in the same position as
it was before the transaction. What will be the measurement cost of the assets received?

Q :-8 What happens if the cost of the previous part/inspection was/ was not identified in the transaction
in which the item was acquired or constructed?

Q :-9 What will be your answer in the above question, if it is not practicable for an enterprise to
determine the carrying amount of the replaced part/inspection?

Q :-10 Entity A is a large manufacturing group. It owns a number of industrial buildings, such as factories
and warehouses and office buildings in several capital cities. The industrial buildings are located in
industrial zones, whereas the office buildings are in central business districts of the cities. Entity A's
management want to apply the revaluation model as per AS 10 (Revised) to the subsequent
measurement of the office buildings but continue to apply the historical cost model to the industrial
buildings. State whether this is acceptable under AS 10 (Revised) or not with reasons?

Q :-11 Entity A has a policy of not providing for depreciation on PPE capitalised in the year until the
following year, but provides for a full year's depreciation in the year of disposal of an asset. Is this
acceptable?

Q :-12 Entity A purchased an asset on 1st January 20X1 for ` 1,00,000 and the asset had an estimated
useful life of 10 years and a residual value of nil. On 1st January 20X5, the directors review the estimated
life and decide that the asset will probably be useful for a further 4 years. Calculate the amount of
depreciation for each year, if company charges depreciation on Straight Line basis.

Q :-13 Entity B constructs a machine for its own use. Construction is completed on 1st November 20X1
but the company does not begin using the machine until 1st March 20X2. Comment

Q :-14 A property costing ` 10,00,000 is bought in 20X1. Its estimated total physical life is 50 years.
However, the company considers it likely that it will sell the property after 20 years. The estimated
residual value in 20 years' time, based on 20X1 prices, is: Case (a) ` 10,00,000 Case (b) ` 9,00,000.
Calculate the amount of depreciation.

Q :-15 Entity B manufactures industrial chemicals and uses blending machines in the production process.
The output of the blending machines is consistent from year to year and they can be used for different
products. However, maintenance costs increase from year to year and a new generation of machines
with significant improvements over existing machines is available every 5 years. Suggest the depreciation
method to the management.

Q :-16 Entity A carried plant and machinery in its books at ` 2,00,000. These were destroyed in a fire. The
assets were insured 'New for old' and were replaced by the insurance company with new machines that
cost ` 20,00,000. The machines were acquired by the insurance company and the company did not
receive ` 20,00,000 as cash compensation. State, how Entity A should account for the same?
Q :-17 With reference to AS-10 Revised, classify the items under the following heads: HEADS (i) Purchase
Price of Property, plant and Equipment (PPE) (ii) Directly attributable cost of PPE or (iii) Cost not included
in determining the carrying amount of an item of PPE.

ITEMS (1) Import duties and non-refundable purchase taxes. (2) Initial delivery and handling costs. (3)
Initial operating losses, such as those incurred while demand for the output of an item builds up. (4)
Costs incurred while an item capable of operating in the manner intended by management has yet to be
brought into use or is operated at less than full capacity. (5) Trade discounts and rebates. (6) Costs of
relocating or reorganizing part or all of the operations of an enterprise. (7) Installation and assembly
costs. (8) Administration and other general overhead costs.

Q :-18 ABC Ltd. is installing a new plant at its production facility. It has incurred these costs: 1. Cost of the
plant (cost per supplier’s invoice plus taxes) ` 25,00,000 2. Initial delivery and handling costs ` 2,00,000 3.
Cost of site preparation ` 6,00,000 4. Consultants used for advice on the acquisition of the plant `
7,00,000 5. Interest charges paid to supplier of plant for deferred credit ` 2,00,000. 6. Estimated
dismantling costs to be incurred after 7 years ` 3,00,000 7. Operating losses before commercial
production ` 4,00,000 Please advise ABC Ltd. on the costs that can be capitalised in accordance with AS
10 (Revised).

Q :-19 Arka Ltd. purchased machinery for ` 3,000 lakhs. Depreciation was charged at 10% on SLM basis
for a useful life of 10 years. At the end of Year 4, the machinery was revalued to ` 2,700 lakhs and the
same was adopted. What will be the carrying amount of the asset at the end of Year 5 and Year 6?
Assume no change in the useful life.

Q :-20 Skanda Ltd. acquired a machinery for ` 2,50,00,000 five years ago. Depreciation was charged at
10% p.a. on SLM basis, useful life being 10 years. At the beginning of Year 3, the machinery was revalued
to ` 3,00,00,000 with the surplus on revaluation being credited to Revaluation Reserve. Depreciation was
provided on the revalued amount over the balance useful life of 8 years. The machinery was sold in the
current year for ` 1,12,50,000. Give the accounting treatment for the above in the Company’s accounts.
What will be the treatment if the machinery fetched only ` 42,50,000 now?

Q :-21 Akshar Ltd. installed a new Plant (not a qualifying asset), at its production facility, and incurred the
following costs:

▪ Cost of the Plant (as per supplier’s invoice): ` 30,00,000

▪ Initial delivery and handling costs: ` 1,00,000

▪ Cost of site preparation: ` 2,00,000

▪ Consultant fee for advice on acquisition of Plant: ` 50,000

▪ Interest charges paid to supplier against deferred credit: ` 1,00,000

▪ Estimate of Dismantling and Site Restoration costs: ` 50,000 after 10 years (Present Value is ` 30,000)
▪ Operating losses before commercial production: ` 40,000

The company identified motors installed in the Plant as a separate component and a cost of ` 5,00,000
(Purchase Price) and other costs were allocated to them proportionately. The company estimates the
useful life of the Plant and those of the Motors as 10 years and 6 years respectively and SLM method of
Depreciation is used. At the end of Year 4, the company replaces the Motors installed in the Plant at a
cost of ` 6,00,000 and estimated the useful life of new motors to be 5 years. Also, the company revalued
its entire class of Fixed Assets at the end of Year 4. The revalued amount of Plant as a whole is `
25,00,000. At the end of Year 8, the company decides to retire the Plant from active use and also
disposed the Plant as a whole for ` 6,00,000. There is no change in the Dismantling and Site Restoration
liability during the period of use. You are required to explain how the above transaction would be
accounted in accordance with AS 10.

Q :-22 Bharat Infrastructure Ltd. acquired a heavy machinery at a cost of ` 1,000 lakhs, the breakdown of
its components is not provided. The estimated useful life of the machinery is 10 years. At the end of Year
6, the turbine, which is a major component of the machinery, needed replacement, as further usage and
maintenance was uneconomical. The remainder of the machine is in good condition and is expected to
last for the remaining 4 years. The cost of the new turbine is ` 450 lakhs. Give the accounting treatment
for the new turbine, assuming SLM Depreciation and a discount rate of 8%.

Q :-23 Preet Ltd. intends to set up a steel plant, for which it has acquired a dilapidated factor having an
area of 5,000 acres at a cost of ₹ 60,000 per acre. Preet Ltd. has incurred ` 1.10 crores on demolishing
the old Factory Building thereon. A sum of ` 63,00,000 (including 5% GST thereon) was realized from the
sale of material salvaged from the site. Preet Ltd. incurred Stamp Duty and Registration Charges of 7% of
land value, paid legal and consultancy charges ` 8,00,000 for land acquisition and incurred ` 1,25,000 on
title guarantee insurance. Compute the value of the land acquired.

Q :-24 Star Limited purchased machinery for ` 6,80,000 (inclusive of GST of ` 40,000). Input credit is
available for entire amount of GST paid. The company incurred the following other expense for
installation. `

Cost of preparation of site for installation 21,200

Total Labour charges 56,000

(200 out of the total of 500 men hours worked, were spent on installation of the machinery) Spare parts
and tools consumed in installation 5,000

Total salary of supervisor 26,000 (Time spent for installation was 25% of the total time worked)

Total technical expense 34,000 (1/10 relates to the plant installation)

Test run and experimental production expenses 18,000

Consultancy charges to architect for plant set up 11,000

The machine was ready for use on 15.01.20X1 but was used from 01.02.20X1. Due to this delay further
expenses of ` 8,900 were incurred. Calculate the value at which the plant should be capitalized in the
books of Star Limited.

Q :-25