Ind AS 16 - Property, Plant and Equipment: A Comprehensive Guide for CA Final Students

Ind AS 16, 'Property, Plant and Equipment' (PPE), is a cornerstone standard in financial reporting, governing the accounting treatment for tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and are expected to be used for more than one period. For CA Final students, a deep understanding of Ind AS 16 is crucial not only for direct application questions but also for its interplay with other standards like Ind AS 36 (Impairment), Ind AS 116 (Leases), and Ind AS 105 (Non-current Assets Held for Sale). This guide provides an exhaustive overview, focusing on recognition, measurement, depreciation, revaluation, derecognition, and critical Indian regulatory aspects.

Quick Answer for Featured Snippets:
Ind AS 16 prescribes the accounting treatment for Property, Plant and Equipment, requiring assets to be initially recognized at cost, and subsequently measured using either the cost model or the revaluation model. Key aspects include systematic depreciation over useful life, annual review of estimates, component accounting, and specific disclosure requirements to ensure transparent financial reporting.

1. Introduction to Ind AS 16

• Objective: To prescribe the accounting treatment for PPE, ensuring users of financial statements can discern information about an entity's investment in PPE and changes in such investment.
• Scope: Applies to all PPE except those for which another Ind AS requires or permits a different accounting treatment (e.g., biological assets, mineral rights, investment property).
• Key Definitions:
  • Property, Plant and Equipment (PPE): Tangible items held for use in production/supply, rental, or admin purposes, expected to be used for >1 period.
  • Cost: Amount of cash/cash equivalents paid or fair value of other consideration given to acquire an asset at acquisition/construction.
  • Depreciable Amount: Cost - Residual Value.
  • Depreciation: Systematic allocation of depreciable amount over useful life.
  • Carrying Amount: Cost/Revalued Amount - Accumulated Depreciation - Accumulated Impairment Losses.
  • Fair Value: Price that would be received to sell an asset... in an orderly transaction between market participants at the measurement date.
  • Residual Value: Estimated amount entity would obtain from disposal, after deducting estimated costs of disposal, if the asset were already of the age and condition expected at the end of its useful life.
  • Useful Life: Period over which an asset is expected to be available for use, or number of production units expected.

2. Recognition of Property, Plant and Equipment

• Recognition Criteria: An item of PPE shall be recognised as an asset if, and only if:
  1. It is probable that future economic benefits associated with the item will flow to the entity.
  2. The cost of the item can be measured reliably.
• Spare Parts & Servicing Equipment: Generally carried as inventory. Major spare parts and stand-by equipment qualify as PPE if they meet the definition.
• Safety & Environmental Equipment: Recognised as PPE if they enable the entity to obtain future economic benefits from related assets in excess of what it could obtain if it had not acquired them.

3. Initial Measurement

• Cost Model: An item of PPE shall be measured at its cost.
• Elements of Cost:
  1. Purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
  2. Directly attributable costs of bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
     • Examples: Employee benefits, site preparation, initial delivery & handling, installation & assembly, testing costs (net of sales proceeds of samples), professional fees.
  3. Initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located (asset retirement obligation, covered by Ind AS 37).
• Costs NOT part of PPE:
  • Costs of opening a new facility.
  • Costs of introducing a new product/service.
  • Costs of conducting business in a new location/customer segment.
  • Administrative and other general overhead costs.
  • Costs incurred while an asset capable of operating is not yet brought into use or is operating at less than full capacity.
  • Initial operating losses.
  • Costs of relocating or reorganising part or all of an entity's operations.
• Measurement of Cost:
  • Cash Price Equivalent: If payment is deferred beyond normal credit terms, the cost is the cash price equivalent. The difference is recognised as interest expense over the period of credit.
  • Exchange of Assets: Measured at fair value unless the exchange lacks commercial substance or fair value cannot be reliably measured. If so, measured at carrying amount of asset given up.

4. Measurement Subsequent to Initial Recognition

An entity shall choose either the cost model or the revaluation model as its accounting policy and apply that policy to an entire class of PPE.

4.1 Cost Model

• After recognition as an asset, an item of PPE shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

4.2 Revaluation Model

• After recognition as an asset, an item of PPE whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
• Frequency of Revaluation: Sufficiently regularly to ensure that the carrying amount does not differ materially from its fair value at the end of the reporting period.
• Revaluation Surplus/Deficit:
  • Increase: Credited to Other Comprehensive Income (OCI) and accumulated in equity under the heading 'Revaluation Surplus'.
  • Decrease: Recognised in profit or loss. However, decrease reversing a previous increase in the same asset is debited to revaluation surplus in OCI to the extent of the credit balance existing for that asset.
• Depreciation after Revaluation: Depreciation is charged on the revalued amount over the remaining useful life.
• Transfer of Revaluation Surplus: The revaluation surplus included in equity may be transferred directly to retained earnings when the asset is derecognised or as the asset is used by the entity (proportionately over the remaining useful life).

5. Depreciation

• Depreciable Amount: Cost less residual value.
• Useful Life: Entity-specific, not industry average. Reviewed at least annually.
• Residual Value: Reviewed at least annually. Change in residual value is a change in accounting estimate (prospective).
• Commencement of Depreciation: When the asset is available for use (i.e., in the location and condition necessary for it to be capable of operating in the manner intended by management).
• Cessation of Depreciation: Earlier of the date the asset is classified as held for sale (Ind AS 105) or the date it is derecognised. Depreciation does not cease when the asset becomes idle or is retired from active use unless it is fully depreciated.
• Depreciation Methods:
  • Straight-Line Method (SLM): Results in a constant charge over the useful life if the asset’s residual value does not change. $$\text{Annual Depreciation} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}}$$
  • Diminishing Balance Method (WDV): Results in a decreasing charge over the useful life. $$\text{Depreciation Rate} = 1 - \left( \frac{\text{Residual Value}}{\text{Cost}} \right)^{1 / \text{Useful Life}}$$ $$\text{Annual Depreciation} = \text{Opening Carrying Amount} \times \text{Depreciation Rate}$$
  • Units of Production Method: Results in a charge based on the expected use or output. $$\text{Depreciation per Unit} = \frac{\text{Cost} - \text{Residual Value}}{\text{Total Estimated Units}}$$ $$\text{Period Depreciation} = \text{Depreciation per Unit} \times \text{Actual Units Produced}$$
• Choice of Method: The depreciation method used shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.
• Review of Depreciation Method: Reviewed at least annually. If there has been a significant change in the expected pattern of consumption, the method shall be changed. Such a change is accounted for as a change in accounting estimate (prospective application).
• Component Depreciation: Each part of an item of PPE with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

6. Derecognition

• An item of PPE shall be derecognised:
  1. On disposal.
  2. When no future economic benefits are expected from its use or disposal.
• Gain or Loss on Derecognition: The gain or loss arising from the derecognition of an item of PPE shall be included in profit or loss when the item is derecognised.
  • Calculated as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

7. Impairment of Assets (Brief Mention)

• Ind AS 16 states that an entity shall apply Ind AS 36 'Impairment of Assets' to determine whether an item of PPE is impaired and, if so, how to recognise and measure the impairment loss.

8. Disclosure Requirements

• For each class of PPE:
  • Measurement bases (cost or revaluation model).
  • Depreciation methods used.
  • Useful lives or depreciation rates.
  • Gross carrying amount and accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period.
  • Reconciliation of the carrying amount at the beginning and end of the period, showing: additions, disposals, acquisitions through business combinations, revaluation increases/decreases, impairment losses/reversals, depreciation, net exchange differences, other changes.
• If revaluation model is used:
  • Effective date of revaluation.
  • Whether an independent valuer was involved.
  • For each revalued class, the carrying amount that would have been recognised under the cost model.
  • Revaluation surplus, including changes during the period and any restrictions on distribution.

9. Indian Regulatory Context for CA Final Students

9.1 Companies Act, 2013 – Schedule II

• Useful Lives: Prescribes minimum useful lives for various classes of assets. Companies can use different useful lives if justified and disclosed.
• Residual Value: Shall not be more than 5% of the original cost of the asset. This is a key difference from Ind AS 16 which allows any estimated residual value.
• Component Depreciation: Mandatory for significant components.

9.2 Income Tax Act, 1961

• Block of Assets: Depreciation is calculated on 'blocks of assets' (assets falling in the same class and having the same rate of depreciation).
• Written Down Value (WDV) Method: Predominantly used for income tax purposes.
• Rates: Prescribed rates (e.g., 15% for general P&M).
• Impact on Deferred Tax: Differences between book depreciation (as per Ind AS 16/Schedule II) and tax depreciation (as per Income Tax Act) lead to temporary differences, requiring recognition of Deferred Tax Assets (DTAs) or Deferred Tax Liabilities (DTLs) as per Ind AS 12.

10. Common Mistakes & CA Exam Tips

• Confusing Cost vs. Revaluation Model: Apply the chosen policy consistently to a class of assets.
• Incorrect Initial Cost: Ensure only directly attributable costs are capitalised. Exclude admin/general overheads, initial operating losses.
• Depreciation Calculation Errors: Pay attention to partial year depreciation, changes in estimates (prospective), and component depreciation.
• Revaluation Accounting: Correctly allocate increases/decreases to OCI/P&L and manage the revaluation surplus.
• Derecognition: Calculate gain/loss correctly, considering carrying amount and disposal proceeds.
• Interplay with other Ind AS: Be aware of Ind AS 36 (Impairment), Ind AS 116 (Leases for right-of-use assets), Ind AS 105 (Assets held for sale).
• Indian Specifics: Always consider Schedule II's residual value cap and useful lives, and the impact of tax depreciation differences on deferred tax.
• Exam Strategy:
  • Clearly state the accounting policy chosen (Cost/Revaluation).
  • Show all workings for cost, depreciation, and revaluation.
  • For changes in estimates, clearly explain prospective application.
  • Practice journal entries for all scenarios.

Practice Questions (CA Final Level)

Test your understanding with these exam-style questions. Model answers are provided for self-assessment. These are designed to simulate CA Final written answer requirements.

Short Form Questions

Q1. An entity acquires a machine for ₹10,00,000. Installation costs are ₹50,000. Testing costs are ₹20,000, and proceeds from selling samples produced during testing are ₹5,000. What is the initial cost of the machine as per Ind AS 16?

Model Answer:
Initial Cost = Purchase Price + Installation Costs + Testing Costs - Proceeds from samples
Initial Cost = ₹10,00,000 + ₹50,000 + ₹20,000 - ₹5,000 = ₹10,65,000

Q2. A building was acquired on 1 April 2022 for ₹50,00,000. Its useful life is 20 years and residual value is ₹5,00,000. On 1 April 2024, the entity revised its useful life to 15 years from the date of acquisition and residual value to ₹4,00,000. Calculate depreciation for the year ended 31 March 2025.

Model Answer:
Original Annual Depreciation (2022-23, 2023-24) = (₹50,00,000 - ₹5,00,000) / 20 = ₹2,25,000
Accumulated Depreciation till 31 March 2024 = ₹2,25,000 * 2 = ₹4,50,000
Carrying Amount at 1 April 2024 = ₹50,00,000 - ₹4,50,000 = ₹45,50,000

Remaining useful life from 1 April 2024 = 15 years (total) - 2 years (elapsed) = 13 years
Revised Depreciable Amount = Carrying Amount - New Residual Value = ₹45,50,000 - ₹4,00,000 = ₹41,50,000
Depreciation for 2024-25 = ₹41,50,000 / 13 = ₹3,19,230.77 (approx)

Q3. Explain the treatment of a revaluation increase and a revaluation decrease under Ind AS 16.

Model Answer:

• Revaluation Increase: Credited to Other Comprehensive Income (OCI) and accumulated in equity under 'Revaluation Surplus'.
• Revaluation Decrease: Recognised in profit or loss. However, if the decrease reverses a previous increase for the same asset, it is debited to revaluation surplus in OCI to the extent of the credit balance existing for that asset. Any excess decrease is recognised in profit or loss.

Q4. A company uses the revaluation model for its land. On 1 April 2023, land was revalued to ₹1,00,00,000, resulting in a revaluation surplus of ₹20,00,000. On 31 March 2025, the fair value of the land falls to ₹90,00,000. Pass the necessary journal entry for the decrease.

Model Answer:
Carrying amount at 31 March 2025 = ₹1,00,00,000
Fair value at 31 March 2025 = ₹90,00,000
Decrease in value = ₹10,00,000

Since there is an existing revaluation surplus of ₹20,00,000, the decrease will be debited to OCI (Revaluation Surplus).

Journal Entry (31 March 2025):
Revaluation Surplus A/c Dr. ₹10,00,000
To Land A/c ₹10,00,000
(Being decrease in fair value of land recognised against revaluation surplus)

Case Studies

Case Study 1: Initial Cost, Component Depreciation & Change in Estimate

XYZ Ltd. purchased a specialized machine on 1 April 2023 for ₹50,00,000.
Additional costs incurred:

• Import duties: ₹2,00,000
• Non-refundable purchase taxes: ₹1,00,000
• Trade discount received: ₹50,000
• Site preparation costs: ₹1,50,000
• Installation and assembly costs: ₹2,50,000
• Initial operating losses during trial production: ₹1,00,000
• Estimated dismantling and restoration costs at the end of useful life (PV): ₹3,00,000

The machine has two significant components:

1. Main Body: Estimated useful life 10 years, residual value ₹2,00,000.
2. Engine: Estimated useful life 5 years, residual value ₹50,000.
   The cost of the engine is estimated to be 30% of the total initial cost of the machine (excluding dismantling costs).

On 1 April 2025, due to technological advancements, the useful life of the Engine is revised to 3 years from the date of revision (i.e., total 7 years from acquisition), and its residual value is revised to ₹20,000.

Requirements:
(a) Calculate the initial cost of the machine as per Ind AS 16.
(b) Calculate the depreciable amount and annual depreciation for each component for the years ended 31 March 2024 and 31 March 2025.
(c) Calculate the depreciation for each component for the year ended 31 March 2026, considering the change in estimate.
(d) Pass the journal entries for depreciation for the year ended 31 March 2026.

Model Solution:

(a) Initial Cost of Machine:
Purchase Price ₹50,00,000
Add: Import Duties ₹2,00,000
Add: Non-refundable Purchase Taxes ₹1,00,000
Less: Trade Discount (₹50,000)
Add: Site Preparation Costs ₹1,50,000
Add: Installation and Assembly Costs ₹2,50,000
Add: Estimated Dismantling & Restoration Costs ₹3,00,000
Total Initial Cost ₹59,50,000
(Initial operating losses are not capitalised as per Ind AS 16)

(b) Depreciation for 2023-24 and 2024-25 (Component Depreciation):

• Cost Allocation:

  • Total cost excluding dismantling = ₹59,50,000 - ₹3,00,000 = ₹56,50,000
  • Cost of Engine = 30% of ₹56,50,000 = ₹16,95,000
  • Cost of Main Body = ₹56,50,000 - ₹16,95,000 = ₹39,55,000
  • Dismantling costs are allocated proportionately or based on specific component if identifiable. For simplicity, we can assume it's part of the Main Body or allocated based on cost.
    • Revised Cost of Main Body = ₹39,55,000 + ₹3,00,000 = ₹42,55,000

• Main Body:

  • Cost = ₹42,55,000
  • Residual Value = ₹2,00,000
  • Useful Life = 10 years
  • Depreciable Amount = ₹42,55,000 - ₹2,00,000 = ₹40,55,000
  • Annual Depreciation = ₹40,55,000 / 10 = ₹4,05,500

• Engine:

  • Cost = ₹16,95,000
  • Residual Value = ₹50,000
  • Useful Life = 5 years
  • Depreciable Amount = ₹16,95,000 - ₹50,000 = ₹16,45,000
  • Annual Depreciation = ₹16,45,000 / 5 = ₹3,29,000

Depreciation for 2023-24:

• Main Body: ₹4,05,500
• Engine: ₹3,29,000
• Total: ₹7,34,500

Depreciation for 2024-25:

• Main Body: ₹4,05,500
• Engine: ₹3,29,000
• Total: ₹7,34,500

(c) Depreciation for 2025-26 (after change in estimate for Engine):

• Main Body: No change. Depreciation for 2025-26 = ₹4,05,500

• Engine (Change in Estimate - Prospective Application):

  • Cost = ₹16,95,000
  • Accumulated Depreciation till 31 March 2025 = ₹3,29,000 * 2 = ₹6,58,000
  • Carrying Amount at 1 April 2025 = ₹16,95,000 - ₹6,58,000 = ₹10,37,000
  • Revised Residual Value = ₹20,000
  • Revised Remaining Useful Life = 3 years (from 1 April 2025)
  • Revised Depreciable Amount = ₹10,37,000 - ₹20,000 = ₹10,17,000
  • Depreciation for 2025-26 = ₹10,17,000 / 3 = ₹3,39,000

• Total Depreciation for 2025-26: ₹4,05,500 (Main Body) + ₹3,39,000 (Engine) = ₹7,44,500

(d) Journal Entries for Depreciation for the year ended 31 March 2026:

Depreciation Expense A/c Dr. ₹7,44,500
To Accumulated Depreciation - Main Body A/c ₹4,05,500
To Accumulated Depreciation - Engine A/c ₹3,39,000
(Being depreciation charged for the year)

Case Study 2: Revaluation Model and Deferred Tax Implications

PQR Ltd. owns a building which was acquired on 1 April 2022 for ₹1,00,00,000. Its useful life is 25 years and residual value is ₹0. PQR Ltd. follows the revaluation model for its buildings.
On 31 March 2024, the fair value of the building was ₹1,10,00,000. The remaining useful life is reassessed to be 23 years from the revaluation date.
On 31 March 2025, the fair value of the building fell to ₹95,00,000.
The company's tax rate is 30%. For tax purposes, the building is depreciated at 5% WDV. Assume no deferred tax was recognised on initial acquisition.

Requirements:
(a) Calculate depreciation for 2022-23 and 2023-24 (pre-revaluation).
(b) Pass journal entries for revaluation on 31 March 2024.
(c) Calculate depreciation for 2024-25.
(d) Pass journal entries for revaluation on 31 March 2025.
(e) Calculate the deferred tax impact (DTL/DTA) for the year ended 31 March 2024 and 31 March 2025, assuming deferred tax is recognised on revaluation surplus.

Model Solution:

(a) Depreciation (Pre-revaluation):
Original Cost = ₹1,00,00,000
Useful Life = 25 years
Residual Value = ₹0
Annual Depreciation (SLM) = ₹1,00,00,000 / 25 = ₹4,00,000

• 2022-23: Depreciation = ₹4,00,000
  Carrying Amount (Book) at 31.3.2023 = ₹1,00,00,000 - ₹4,00,000 = ₹96,00,000
• 2023-24: Depreciation = ₹4,00,000
  Carrying Amount (Book) at 31.3.2024 (before reval) = ₹96,00,000 - ₹4,00,000 = ₹92,00,000

(b) Revaluation on 31 March 2024:
Fair Value = ₹1,10,00,000
Carrying Amount (Book) = ₹92,00,000
Revaluation Surplus = ₹1,10,00,000 - ₹92,00,000 = ₹18,00,000

Journal Entries:
Building A/c Dr. ₹18,00,000
To Revaluation Surplus A/c (OCI) ₹18,00,000
(Being revaluation increase recognised)

(c) Depreciation for 2024-25 (Post-revaluation):
Revalued Amount at 31.3.2024 = ₹1,10,00,000
Remaining Useful Life = 23 years
Residual Value = ₹0 (assumed to remain ₹0 unless revised)
Annual Depreciation = ₹1,10,00,000 / 23 = ₹4,78,260.87 (approx ₹4,78,261)

Carrying Amount (Book) at 31.3.2025 (before reval) = ₹1,10,00,000 - ₹4,78,261 = ₹1,05,21,739

(d) Revaluation on 31 March 2025:
Fair Value = ₹95,00,000
Carrying Amount (Book) = ₹1,05,21,739
Revaluation Decrease = ₹1,05,21,739 - ₹95,00,000 = ₹10,21,739

Journal Entries:
Revaluation Surplus A/c (OCI) Dr. ₹10,21,739
To Building A/c ₹10,21,739
(Being revaluation decrease recognised against existing revaluation surplus)

(e) Deferred Tax Impact:

Deferred Tax on Revaluation Surplus:
Ind AS 12 requires deferred tax to be recognised on revaluation surplus. The revaluation surplus is a temporary difference because the revalued amount will be depreciated for accounting purposes, but the tax base remains the historical cost less tax depreciation.

• Tax Base at 31.3.2024:
  Original Cost = ₹1,00,00,000
  Tax Depreciation (2022-23) = 5% of ₹1,00,00,000 = ₹5,00,000
  WDV at 31.3.2023 = ₹95,00,000
  Tax Depreciation (2023-24) = 5% of ₹95,00,000 = ₹4,75,000
  Tax WDV at 31.3.2024 = ₹95,00,000 - ₹4,75,000 = ₹90,25,000

• Temporary Difference at 31.3.2024 (due to revaluation):
  Carrying Amount (Book) = ₹1,10,00,000
  Tax Base = ₹90,25,000
  Taxable Temporary Difference = ₹1,10,00,000 - ₹90,25,000 = ₹19,75,000

  Deferred Tax Liability (DTL) at 31.3.2024:
  DTL = ₹19,75,000 * 30% = ₹5,92,500

  This DTL is recognised in OCI, corresponding to the revaluation surplus.
  Journal Entry (31 March 2024):
  Revaluation Surplus A/c (OCI) Dr. ₹5,92,500
  To Deferred Tax Liability A/c ₹5,92,500
  (Being deferred tax on revaluation surplus)

• Tax Base at 31.3.2025:
  Tax WDV at 31.3.2024 = ₹90,25,000
  Tax Depreciation (2024-25) = 5% of ₹90,25,000 = ₹4,51,250
  Tax WDV at 31.3.2025 = ₹90,25,000 - ₹4,51,250 = ₹85,73,750

• Temporary Difference at 31.3.2025 (after revaluation decrease):
  Carrying Amount (Book) = ₹95,00,000
  Tax Base = ₹85,73,750
  Taxable Temporary Difference = ₹9,26,250

  Deferred Tax Liability (DTL) at 31.3.2025:
  DTL = ₹9,26,250 * 30% = ₹2,77,875

  The DTL needs to be adjusted from ₹5,92,500 to ₹2,77,875.
  Decrease in DTL = ₹5,92,500 - ₹2,77,875 = ₹3,14,625.
  This decrease in DTL is also recognised in OCI.
  Journal Entry (31 March 2025):
  Deferred Tax Liability A/c Dr. ₹3,14,625
  To Revaluation Surplus A/c (OCI) ₹3,14,625
  (Being adjustment of deferred tax on revaluation surplus)

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Key Takeaways

• Ind AS 16 governs tangible assets used for production, rental, or administration, expected to be used for more than one period.
• Initial recognition is at cost, including directly attributable costs and dismantling estimates.
• Subsequent measurement can be Cost Model or Revaluation Model, applied consistently to a class of assets.
• Depreciation is a systematic allocation over useful life, reflecting consumption pattern. Component depreciation is mandatory.
• Changes in useful life, residual value, or depreciation method are accounted for prospectively.
• Revaluation increases go to OCI (Revaluation Surplus), decreases go to P&L (unless reversing a prior OCI increase).
• Derecognition occurs on disposal or when no future benefits are expected; gain/loss goes to P&L.
• Indian context requires adherence to Schedule II (useful lives, 5% residual cap) and consideration of Income Tax Act (WDV on block of assets) for deferred tax implications (Ind AS 12).

Frequently Asked Questions (FAQs)

Q: What is the initial cost of PPE as per Ind AS 16?
A: The initial cost includes the purchase price (net of trade discounts), import duties, non-refundable purchase taxes, directly attributable costs to bring the asset to its intended condition and location, and the initial estimate of dismantling/restoration costs.

Q: How is a revaluation increase treated under Ind AS 16?
A: A revaluation increase is credited to Other Comprehensive Income (OCI) and accumulated in equity under 'Revaluation Surplus'.

Q: What is component depreciation?
A: Component depreciation requires each significant part of an item of PPE to be depreciated separately over its own useful life, if that life differs from the main asset.

References & Further Reading

• Ind AS 16 – Property, Plant and Equipment (ICAI)
• Schedule II of the Companies Act, 2013 (useful lives table)
• ICAI Study Material / RTPs for CA Final Financial Reporting
• Income Tax Act, 1961 – Depreciation provisions & Rules

Last Updated: July 2024 | Prepared by Kartavvya CA Expert Team (aligned with latest ICAI syllabus & Ind-AS)

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