Question 1

Following items appear in the Trial Balance of Saral Ltd. as on 31st March, 2014: 4,500 Equity Shares of ₹100 each (₹4,50,000), Capital Reserve including ₹40,000 being profit on sale of Plant (₹90,000), Securities Premium (₹40,000), Capital Redemption Reserve (₹30,000), General Reserve (₹1,05,000), Profit and Loss Account Cr. Balance (₹65,000). The company decided to issue to equity shareholders bonus shares at the rate of 1 share for every 3 shares held. Company decided that there should be the minimum reduction in free reserves. Pass necessary Journal Entries in the books Saral Ltd.

Accepted Answer

**Bonus Share Calculation:**
Existing equity shares = 4,500; Bonus ratio = 1 share per 3 shares held → Bonus shares = 4,500 × 1/3 = **1,500 shares**; Amount to be capitalised = 1,500 × ₹100 = **₹1,50,000**.

**Identification of Sources (Minimum reduction in free reserves):**
To minimise the use of free reserves (General Reserve and P&L A/c), non-free reserves must be utilised first. The **Capital Reserve** includes ₹40,000 arising from profit on sale of Plant — this represents a realised capital profit and is permissible for capitalisation. The balance ₹50,000 of Capital Reserve (non-realised nature) cannot be used. **Securities Premium** (₹40,000) and **Capital Redemption Reserve** (₹30,000) are also permissible non-free sources.

Sources used:
1. Capital Reserve (realised profit portion) — ₹40,000
2. Securities Premium — ₹40,000
3. Capital Redemption Reserve — ₹30,000
4. General Reserve (free reserve, minimum required) — ₹40,000
**Total = ₹1,50,000** ✓

**Journal Entries in the books of Saral Ltd.:**

**(i)** Capital Reserve A/c Dr. ₹40,000
     To Bonus to Shareholders A/c ₹40,000
*(Being profit on sale of plant from Capital Reserve utilised for bonus issue)*

**(ii)** Securities Premium A/c Dr. ₹40,000
      To Bonus to Shareholders A/c ₹40,000
*(Being Securities Premium utilised for bonus issue)*

**(iii)** Capital Redemption Reserve A/c Dr. ₹30,000
        To Bonus to Shareholders A/c ₹30,000
*(Being Capital Redemption Reserve utilised for bonus issue)*

**(iv)** Genera…

Question 2

Calculate the value of raw materials and closing stock based on the following information:

Raw material X:
Closing balance: 500 units
Cost price including excise duty: ₹ 200 per unit
Excise duty: ₹ 10 per unit
(Cenvat credit is receivable on the excise duty paid.)
Freight inward: ₹ 20 per unit
Unloading charges: ₹ 10 per unit
Replacement cost: ₹ 150 per unit

Finished goods Y:
Closing Balance: 1200 units
Material consumed: ₹ 220 per unit
Direct labour: ₹ 60 per unit
Direct overhead: ₹ 40 per unit
Total Fixed overhead for the year was ₹ 2,00,000 on normal capacity of 20,000 units.

Accepted Answer

**Inventory Valuation as per AS 2 (Valuation of Inventories)**

**Cost of Raw Material X per unit:**
Since CENVAT credit is receivable on excise duty, excise duty is excluded from cost as it is recoverable from the tax authorities. As per AS 2, cost of inventories includes purchase price less trade discounts, rebates and other similar deductions, and includes freight, handling and other costs directly attributable to acquisition.

Cost per unit = ₹200 (inclusive of excise) − ₹10 (excise duty excluded due to CENVAT) + ₹20 (freight inward) + ₹10 (unloading charges) = **₹220 per unit**
Total Cost of Raw Material X (500 units) = 500 × ₹220 = **₹1,10,000**

**Cost of Finished Goods Y per unit:**
Fixed overhead per unit = ₹2,00,000 ÷ 20,000 units (normal capacity) = ₹10 per unit
Cost per unit = Material ₹220 + Labour ₹60 + Direct overhead ₹40 + Fixed overhead ₹10 = **₹330 per unit**

**Sub-part (i): When NRV of Finished Goods Y = ₹400**

Since NRV (₹400) > Cost (₹330), finished goods Y are valued at **cost = ₹330 per unit**. As per AS 2, inventories are valued at the lower of cost and NRV.

Since finished goods are expected to be sold above their cost of production, raw material X need NOT be written down below cost. The replacement cost of ₹150 is irrelevant here.

- Value of Raw Material X = 500 × ₹220 = ₹1,10,000
- Value of Finished Goods Y = 1,200 × ₹330 = ₹3,96,000
- **Total Closing Stock = ₹5,06,000**

**Sub-part (ii): When NRV of Finished Goods Y = ₹300**

Since NRV (₹300) <…

Question 3

On 01.04.2010 a machine was acquired at ₹ 4,00,000. The machine was expected to have a useful life of 10 years. The residual value was estimated at 10% of the original cost. At the end of the 3rd year, an attachment was made to the machine at a cost of ₹ 1,80,000 to enhance its capacity. The attachment was expected to have a useful life of 10 years and zero terminal value. During the same time the original machine was revalued upwards by ₹ 90,000 and remaining useful life was reassessed at 9 years and residual value was reassessed at NIL.

Find depreciation for the year, if
(i) attachment retains its separate identity.
(ii) attachment becomes integral part of the machine

Accepted Answer

**Fixed Assets — Depreciation with Revaluation and Additions**

**Background:** A machine costing ₹4,00,000 with a 10-year life and 10% residual value has been used for 3 years. At the end of the 3rd year (31.03.2013), an attachment costing ₹1,80,000 is added. Simultaneously, the original machine is revalued upward by ₹90,000, its remaining life is reassessed at 9 years, and residual value is revised to NIL. As per **AS 10 (Property, Plant and Equipment)**, subsequent costs are capitalised only when future economic benefits are probable, and revaluation requires prospective adjustment of depreciation over remaining useful life.

**Depreciation for the 4th Year (i.e., 01.04.2013 to 31.03.2014):**

**(i) Attachment retains its separate identity:**

When the attachment retains a separate identity, it is treated as an independent asset depreciated over its own useful life of 10 years with zero residual value.

- Depreciation on original machine (revalued) = ₹3,82,000 ÷ 9 = **₹42,444** (approx.)
- Depreciation on attachment = ₹1,80,000 ÷ 10 = **₹18,000**
- **Total depreciation for the 4th year = ₹60,444**

**(ii) Attachment becomes integral part of the machine:**

When the attachment merges with the original machine, both are treated as a single asset. The combined carrying amount is depreciated over the remaining useful life of the original machine (9 years), since the attachment's economic usefulness is tied to the machine's remaining life. Residual value of the combined asset i…

Question 4

Ascertain the value at which various items of Fixed Assets are to be shown in the Financial Statements of Velvet Ltd. and amount to be debited to the Profit and Loss Account in the context of the relevant Accounting Standard.

Narrations for the adjustments made should form part of the answer:

(i) Goodwill was valued at ₹ 1,20,000 by independent valuers and no consideration was paid. The Company has not yet recorded the same.

(ii) Balance of Office Equipment as on 01.04.2013 is ₹ 1,20,000. On 01.04.2013, out of the above office equipment having book value ₹ 20,000 has been retired from use and held for disposal. The net realizable value of the same is ₹ 2,000. Rate of depreciation is 15% p.a. on WDV basis.

(iii) Book Value of Plant and Machinery as on 01.04.2013 was ₹ 7,20,000. On 01.08…

Accepted Answer

The following treatment is required under **AS 10: Property, Plant and Equipment** (Revised 2016) and **AS 26: Intangible Assets** for the financial year 2013-14:

**(i) Goodwill — ₹1,20,000 (Not to be recorded)**

Under **AS 26 (Intangible Assets)**, **internally generated goodwill shall not be recognised as an asset** since it is not an identifiable resource controlled by the enterprise that can be measured reliably at cost. Since no consideration was paid for this goodwill, it is self-generated goodwill and must not be recorded. **Value in Financial Statements: Nil. Amount debited to P&L: Nil.**

**(ii) Office Equipment**

Equipment **retired from active use and held for disposal** must be carried at the **lower of net book value and net realisable value (NRV)** as per AS 10. For the asset with book value ₹20,000 and NRV ₹2,000, NRV is lower; it must be written down to ₹2,000. The difference of ₹18,000 is a loss debited to Profit & Loss Account. No further depreciation is charged on assets held for disposal.

For the remaining equipment still in active use (book value ₹1,00,000), depreciation is charged at 15% p.a. on WDV basis: ₹15,000, reducing the value to ₹85,000.

**Value in Financial Statements:** Equipment in use: ₹85,000 + Equipment held for disposal: ₹2,000 = **₹87,000**. **Amount debited to P&L:** Loss on write-down ₹18,000 + Depreciation ₹15,000 = **₹33,000**.

**(iii) Plant and Machinery**

The new machinery is acquired in exchange for equity shares. Under **AS…

Question 5

M/s. Highway Constructions undertook the construction of a highway on 01.04.2013. The contract was to be completed in 2 years. The contract price was estimated at ₹ 150 crores. Up to 31.03.2014 the company incurred ₹ 120 crores on the construction. The engineers involved in the project estimated that a further ₹ 45 crores would be incurred for completing the work.

What amount should be charged to revenue for the year 2013-14 as per the provisions of Accounting Standard 7 "Construction Contracts"? Show the extract of the Profit & Loss A/c in the books of M/s. Highway Constructions.

Accepted Answer

**Applicable Standard:** AS 7 — Construction Contracts (issued by ICAI) governs accounting for construction contracts using the **Percentage of Completion Method** when the outcome can be reliably estimated.

**Step 1 — Determine Total Estimated Cost:**
Cost incurred up to 31.03.2014: ₹120 crores
Further cost to complete: ₹45 crores
Total estimated cost = ₹165 crores

**Step 2 — Identify Nature of Contract (Loss Contract):**
Total estimated cost (₹165 crores) **exceeds** contract price (₹150 crores).
Total foreseeable loss = ₹165 − ₹150 = **₹15 crores**
As per AS 7, when it is probable that total contract costs will exceed total contract revenue, the **entire expected loss must be recognised as an expense immediately** in the period in which it becomes probable.

**Step 3 — Stage of Completion:**
Stage of Completion = Cost incurred to date ÷ Total estimated cost
= ₹120 ÷ ₹165 = **72.73%** (8/11)

**Step 4 — Revenue to be Recognised (2013-14):**
Contract Revenue = 72.73% × ₹150 crores = **₹109.09 crores**

**Step 5 — Contract Costs to be Charged to P&L:**
Actual costs incurred: ₹120.00 crores
Additional provision for foreseeable loss on remaining work:
  = ₹15.00 − (₹120.00 − ₹109.09) = ₹15.00 − ₹10.91 = **₹4.09 crores**
Total contract costs charged = ₹120.00 + ₹4.09 = **₹124.09 crores**

**Extract of Profit & Loss Account of M/s. Highway Constructions for the year ended 31.03.2014:**

| Particulars | ₹ Crores | Particulars | ₹ Crores |
|---|---|---|---|
| To Contract Costs | …

Question 6

The Articles of Association of Samson Ltd. provide the following:

(i) That 25% of the net profit of each year shall be transferred to reserve fund.

(ii) That an amount equal to 10% of equity dividend shall be set aside for staff bonus.

Accepted Answer

**Articles of Association (AoA) as a Binding Document**

The Articles of Association of a company constitute a contract between the company and its members, and between the members inter se. Under **Section 5 of the Companies Act, 2013**, the AoA contains the regulations for the management of the company. Once a provision is incorporated in the AoA, it is binding on the company, its directors, and all its members. The company is duty-bound to act in accordance with its own AoA.

**Analysis of Provision (i): Transfer of 25% of Net Profit to Reserve Fund**

Under the **Companies Act, 2013**, unlike the erstwhile Companies Act, 1956, there is **no statutory compulsion** to transfer any specific percentage of net profits to the General Reserve before declaring a dividend. The **Companies (Declaration and Payment of Dividend) Rules, 2014** also removed the earlier mandatory transfer requirement.

However, where the **Articles of Association themselves impose an obligation** to transfer 25% of the net profit to a Reserve Fund, the provision becomes contractually binding on the company. The company cannot bypass this Article even by a resolution at a general meeting, unless the Articles are first amended by a **special resolution** under **Section 14 of the Companies Act, 2013**. Non-compliance with this Article would constitute a breach of the contract embodied in the AoA and would expose the directors to liability.

The **effect** of this provision is: Before declaring any dividen…

Question 7

Happy Valley Florists Ltd. acquired a delivery van on hire purchase on 01.04.2010 from Ganesh Enterprises. The hire purchase price was ₹180,000 with a down payment of ₹30,000. Installments of ₹50,000, ₹50,000, ₹30,000, and ₹20,000 were payable after 1, 2, 3, and 4 years respectively. The cash price of the van was ₹150,000 with depreciation charged at 10% WDV.

Accepted Answer

**Part (i): Total Interest and Interest per Installment**

**Total Interest** = Hire Purchase Price − Cash Price = ₹1,80,000 − ₹1,50,000 = **₹30,000**

Since the installments are **unequal**, interest is allocated using the **Outstanding Balance Method** (ratio of outstanding hire purchase installments at the beginning of each year):

| Year | Outstanding Installments (₹) | Ratio | Interest (₹) | Installment (₹) | Principal (₹) |
|------|------------------------------|-------|--------------|-----------------|----------------|
| 1 | 1,50,000 | 15/32 | 14,062.50 | 50,000 | 35,937.50 |
| 2 | 1,00,000 | 10/32 | 9,375.00 | 50,000 | 40,625.00 |
| 3 | 50,000 | 5/32 | 4,687.50 | 30,000 | 25,312.50 |
| 4 | 20,000 | 2/32 | 1,875.00 | 20,000 | 18,125.00 |
| **Total** | **3,20,000** | **32/32** | **30,000** | **1,50,000** | **1,20,000** |

Total principal repaid = ₹1,20,000 = Cash Price (₹1,50,000) − Down Payment (₹30,000) ✓

---

**Part (ii): Van A/c and Ganesh Enterprises A/c (01.04.2010 to 31.03.2014)**

The **Van is recorded at Cash Price** (₹1,50,000). **Depreciation** is charged at 10% on Written Down Value each year.

**Van Account** (in books of Happy Valley Florists Ltd.)

| Date | Particulars | ₹ | Date | Particulars | ₹ |
|------|-------------|---|------|-------------|---|
| 01.04.2010 | To Ganesh Enterprises A/c | 1,50,000 | 31.03.2011 | By Depreciation A/c | 15,000 |
| | | | 31.03.2011 | By Balance c/d | 1,35,000 |
| | | **1,50,000** | | | **1,50,000** |
| 01.04.2011 | To Ba…

Question 8

Smart Investments had the following transactions:

15.12.2013 - Sold 3,000 shares @ ₹ 300. Brokerage of 1% was incurred extra.
15.01.2014 - Received interim dividend @ 10% for the year 2013-14
31.03.2014 - The shares were quoted in the stock exchange @ ₹ 220

Prepare Investment Accounts in the books of Smart Investments. Assume that the average cost method is followed.

Accepted Answer

**Note on Incomplete Data:** The question as stated provides only three transactions (sale, dividend, and year-end quote) but does not provide the opening balance (number of shares held and their cost as on 01.04.2013 or date of purchase). Without the opening balance / purchase details, the **average cost per share** cannot be calculated and the Investment Account cannot be fully prepared. The answer below presents the framework and all computable figures; the placeholder '[Opening Balance]' must be filled from the prior part of the question.

**Format of Investment Account (AS 13 – Accounting for Investments)**

Under **AS 13**, investments are recorded at cost. The Investment Account is maintained with two sub-columns: **Cost** and **Income (Dividend)**.

**Treatment of each transaction:**

**1. Sale on 15.12.2013 – 3,000 shares @ ₹300, Brokerage 1%**
For a *sale*, brokerage reduces the sale proceeds (i.e., it does not increase the cost of the remaining holding). Net sale proceeds = 3,000 × ₹300 − 1% brokerage = ₹9,00,000 − ₹9,000 = **₹8,91,000** credited to the Cost column. The cost of shares sold (using average cost method) is debited out of the Cost column. **Profit or Loss on sale = Net Sale Proceeds − Average Cost of 3,000 shares sold**, to be transferred to Profit & Loss Account.

**2. Interim Dividend on 15.01.2014 @ 10%**
Assuming face value of ₹10 per share, dividend = ₹1 per share. Dividend is received on the shares held *after* the sale on 15.12.2013 (i.e., on re…

Question 9

The Balance Sheet of Amit, Bhushan and Charan, who share profits and losses as 3:2:1 respectively, as on 01.04.2013 shows:
Capital Accounts: Amit ₹ 1,80,000; Bhushan ₹ 1,60,000; Charan ₹ 1,40,000
Current Accounts: Bhushan ₹ 16,000
Creditors ₹ 1,20,000
Machinery ₹ 1,50,000; Furniture ₹ 1,50,000; Debtors ₹ 80,000 (Less: Provision ₹ 4,000); Stock ₹ 2,10,000; Cash ₹ 20,000; Current Accounts: Charan ₹ 10,000

Dev is admitted as a partner on 01.04.2013 for 1/5 share in the profit and loss with the following agreements:
(1) The profit and loss sharing ratio among the old partners will be equal.
(2) Dev brings in ₹ 1,50,000 as capital but is unable to bring the required amount of premium for goodwill.
(3) The goodwill of the firm is valued at ₹ 60,000.
(4) Assets and liabilities are to be valued a…

Accepted Answer

**Step 1 – New Profit Sharing Ratio**

Old partners will share equally among themselves for the remaining 4/5 after Dev's 1/5 share.
- Amit = 4/5 × 1/3 = **4/15**
- Bhushan = 4/5 × 1/3 = **4/15**
- Charan = 4/5 × 1/3 = **4/15**
- Dev = 1/5 = **3/15**

**New ratio = 4 : 4 : 4 : 3**

**Step 2 – Sacrificing Ratio**

Old ratio: Amit 3/6, Bhushan 2/6, Charan 1/6.
- Amit sacrifices: 3/6 – 4/15 = 15/30 – 8/30 = **7/30**
- Bhushan sacrifices: 2/6 – 4/15 = 10/30 – 8/30 = **2/30**
- Charan **gains**: 1/6 – 4/15 = 5/30 – 8/30 = **–3/30** (gaining partner)

**Step 3 – Goodwill Adjustment (through Current Accounts)**

Dev's share of goodwill = 1/5 × ₹60,000 = ₹12,000 (Dev cannot pay → **Dr. Dev's Current A/c ₹12,000**)
Charan gains 3/30 → Charan compensates = 3/30 × ₹60,000 = ₹6,000 → **Dr. Charan's Current A/c ₹6,000**
Total to distribute = ₹18,000
- Amit receives: 7/30 × ₹60,000 = **₹14,000 → Cr. Amit's Current A/c**
- Bhushan receives: 2/30 × ₹60,000 = **₹4,000 → Cr. Bhushan's Current A/c**

**Step 4 – Memorandum Revaluation Account** (since condition 6 states revalued figures will NOT appear in the Balance Sheet, the Memorandum Revaluation approach is used)

*Part I – Revaluation Profit/Loss credited to old partners in old ratio (3:2:1):*
- Machinery gain: ₹56,000; Furniture loss: ₹22,000; Additional provision: ₹4,000
- **Net Profit = ₹30,000**
- Amit Cr. ₹15,000 | Bhushan Cr. ₹10,000 | Charan Cr. ₹5,000

*Part II – Reversal entries (assets restored) debited to ALL partners in new rat…

Question 10

From the following extract of Receipts and Payments Account and the additional information, you are required to calculate the Income from Subscription for the year ending March 31, 2014 and show them in the Income & Expenditure Account, and the Balance Sheet of a Club.

An extract of Receipts and Payments Account for the year ended 31st March, 2014:

Receipts (₹):
To Subscription:
2012-13: 4,000
2013-14: 20,000
2014-15: 5,000
Total: 29,000

Information:
(i) Subscription outstanding on 31.03.2013: ₹ 5,000
(ii) Subscription outstanding on 31.03.2014: ₹ 4,000
(iii) Subscription received in advance on 31.03.2013 for 2013-14: ₹ 5,000

Accepted Answer

**Income from Subscription for the year ending 31st March, 2014**

In club accounting, the Income & Expenditure Account records subscription income on an **accrual basis**, meaning only the amount relating to the current year is recognised as income, irrespective of when cash is received.

To find subscription income for 2013-14, a **Subscription Account** (ledger) is prepared:

**Subscription Account (2013-14)**

| Dr side | ₹ | Cr side | ₹ |
|---|---|---|---|
| Balance b/d – Outstanding (2012-13) | 5,000 | Balance b/d – Received in advance for 2013-14 | 5,000 |
| Income & Expenditure A/c (balancing figure) | **28,000** | Cash/Bank (R&P – total receipts) | 29,000 |
| Balance c/d – Advance for 2014-15 | 5,000 | Balance c/d – Outstanding (2013-14) | 4,000 |
| **Total** | **38,000** | **Total** | **38,000** |

**Income & Expenditure Account (extract) for year ended 31.03.2014**

Income side: Subscription income — **₹28,000**

**Balance Sheet as at 31st March, 2014 (extract)**

| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Subscription received in advance (2014-15) | 5,000 | Subscription outstanding (2013-14) | 4,000 |

Note: The outstanding subscription of ₹5,000 for 2012-13 (appearing as asset in the previous Balance Sheet) has been collected during 2013-14. The advance of ₹5,000 received in 2012-13 for 2013-14 (previously a liability) is now recognised as income in 2013-14.

**Income from Subscription = ₹28,000**

Question 11

Intelligent Ltd., a non financial company has the following entries in its Bank Account. It has sought your advice on the treatment of the same for preparing Cash Flow Statement.

(i) Loans and Advances given to the following and interest earned on them:
(1) to suppliers
(2) to employees
(3) to its subsidiaries companies

(ii) Investment made in subsidiary Smart Ltd. and dividend received

(iii) Dividend paid for the year

(iv) TDS on interest income earned on investments made

(v) TDS on interest earned on advance given to suppliers

(vi) Insurance claim received against loss of fixed asset by fire

Discuss in the context of AS 3 Cash Flow Statement.

Accepted Answer

AS 3 (Cash Flow Statement) classifies all cash flows into three categories: **Operating Activities**, **Investing Activities**, and **Financing Activities**. Each transaction must be analyzed to determine its appropriate classification.

**Treatment of each item:**

**(i) Loans and Advances given and interest earned:**

(1) **To Suppliers**: Advances given to suppliers for procurement of goods are generally part of **Operating Activities** as they constitute changes in working capital. Interest earned on such advances would also be part of operating cash flows.

(2) **To Employees**: Loans granted to employees are considered **Operating Activities** as they relate to employee benefit schemes and working capital. Interest earned is similarly classified as operating cash flow.

(3) **To Subsidiary Companies**: Loans and advances given to subsidiaries are **Investing Activities** because they represent cash outflows for the purpose of establishing or maintaining investments in group entities. Interest earned on such loans, being income from investment holdings, is also classified as **Investing Activities**.

**(ii) Investment in subsidiary and dividend received:**

**Investment made in Smart Ltd.** is clearly an **Investing Activity** (cash outflow), as it involves acquisition of equity stakes in subsidiary entities.

**Dividend received from subsidiary**: AS 3 permits enterprises to classify dividends received either as **Operating Activity** or **Investing Activity**. However…

Question 12

Define Average Due Date. List out the various instances when Average Due Date can be used.

Accepted Answer

**Average Due Date (ADD)** is a method of finding a single due date that represents the weighted average of multiple due dates for various transactions, such that the payment made on this date is financially equivalent to making individual payments on their respective original due dates. In other words, it is the date on which the entire amount of multiple debts or investments due on different dates can be paid as a single lump sum without causing financial loss to either the creditor or debtor.

**Key Instances/Uses of Average Due Date:**

**1. Settlement of Accounts:** When multiple bills or invoices between two parties fall due on different dates, ADD helps determine a single date for settlement of the entire account without any loss of interest to either party.

**2. Cash Discount Eligibility:** ADD is used to determine whether a cash discount on multiple invoices can be claimed. If the ADD falls within the cash discount period, the entire amount becomes eligible for discount.

**3. Interest Calculations:** When a debtor owes multiple amounts on different due dates, ADD is used to compute the average interest liability, treating it as if the entire amount was due on the ADD.

**4. Debenture/Bond Maturity:** ADD helps find the single maturity date for multiple debentures or bonds issued with staggered maturity dates, useful for accounting and financial planning purposes.

**5. Standstill Agreements:** When settling outstanding accounts between two trading partners with mul…

Question 13

What are depreciable assets as per Accounting Standard-6? Explain why AS 6 does not apply to Land.

Accepted Answer

A **depreciable asset**, as per Accounting Standard-6, is a tangible fixed asset which (a) has a limited useful life, (b) is held by an enterprise for use in the production or supply of goods and services or for administrative purposes, and (c) is expected to be used for more than one period. Depreciable assets are subject to wear and tear, obsolescence, or depletion, and their utility and value diminish over time through use or passage of time.

Key characteristics of depreciable assets include: they must be physical in nature (tangible); they must deteriorate or expire during their service to the enterprise; they must generate future economic benefits over multiple periods; and they must have a determinable or ascertainable limited useful life.

**Why AS-6 does not apply to Land:** Land is specifically excluded from the scope of AS-6 for the following reasons: (1) **Indefinite Useful Life** — Land is presumed to have an infinite or indefinite useful life. It does not deteriorate or diminish in substance with the passage of time or through use in operations, unlike buildings, machinery, and other fixed assets. (2) **No Consumption** — Land is not consumed in the production or supply of goods and services; rather, it provides the base or location for such activities without itself being consumed. (3) **Appreciation Rather Than Depreciation** — Land typically appreciates in value over time or maintains its value, whereas depreciable assets decline in value. Depreciation accoun…

CA Inter Adv Accounting

Drill 5 questions from this paper — instant grading

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