AS 10 PPE — Component Replacement: Derecognition and Recognition

# Component Replacement under AS 10

## The Core Rule

When a significant component of PPE is replaced:

1. Recognise the new component's cost by adding it to the asset's carrying amount.

2. Derecognise the old component — remove its carrying amount from the books.

3. Any difference (gain or loss) between the new cost added and old CA removed is recognised in P&L.

This applies even if the replaced part was not depreciated separately in the past.

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## Accounting Entry

```

Dr PPE (New Component) [New Cost]

Dr Accumulated Depreciation [Old Accumulated Depr]

To PPE (Old Component) [Old Gross Value]

To Cash/Creditor [New Cost]

```

Simplified effect: Carrying amount after replacement = CA of rest of asset + New component cost.

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## Estimating Carrying Amount of Old Component

When the old component was not tracked separately:

1. Estimate its original allocated cost at acquisition (use purchase price ratio).

2. Compute accumulated depreciation from acquisition to replacement date.

3. CA = Original allocated cost − Accumulated depreciation.

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## Illus 26 — Motor Replacement at End of Year 4

Old motor CA of ₹1,87,778 exits the books. The new motor at ₹6,00,000 enters.

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## Illus 27 — Turbine Replacement after 6 Years

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## Question 6 — Plant and Boiler