Question
A company paid Rs.15 lakh for a machine imported from
Germany. The machine was tested at a cost of Rs.18,000. The company also spent on freight and installation to the tune of Rs.25,000 and Rs.40,000 respectively. What will be the cost of the machine as per the accounting standards?Solution
As per Ind AS 16 on Property Plant and Equipment (PPE) the cost of the item of PPE includes: · The purchase price, which includes the import duties and any non-refundable taxes on such purchase, after deducting rebates and trade discounts · Costs which are directly attributable to bringing assets to the condition and location essential for it to operate in a manner as intended by the management · Initial estimate of costs of removing and dismantling an item and restoring a site where it is located As such, in above, all costs will be added. Testing in above case is associated with initial purchase and would be included. Subsequent testing will be part of maintenance expense. Cost of machine = 1500000+25000+18000+40000 = Rs.15.83 lakh
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