As per Ind AS 16, cost of Property, Plant and Equipment (PPE) comprises of the following
▪ Purchase price: Purchase price, including import duties and non-refundable purchase taxes,
after deducting trade discounts and rebates
▪ Directly attributable costs: Any costs directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating in the manner intended by
▪ Costs of dismantling: Initial estimate of costs of dismantling and removing the item and
restoring the site on which it is located.
The 2022 amendments have clarified the accounting treatment for ‘excess of net sale proceeds of
items produced over the cost of testing’. As per the 2022 amendments, the excess of net sale
proceeds of items produced over the cost of testing, if any, should not be recognised in the
statement of profit or loss but deducted from the directly attributable costs considered as part of
cost of an item of PPE.
During the process of making an item of PPE available for its intended use, a company may
produce and sell items e.g. minerals extracted in the process of constructing an underground
mine or oil and gas from testing wells before starting production. The amendments issued by
MCA have reiterated that the net sale proceeds of such items produced while the PPE is brought
to its designated location and intended condition (net of cost of testing) would be deducted from
the directly attributable costs considered as part of cost of PPE.
The amendments are effective for annual reporting periods beginning on or after 1 April 2022.
As this amendment is effective from 1 April, 2022, therefore a entity should consider the impact
of the same in terms of paragraphs 30 and 31 of IND AS 8 “Accounting policies, changes in
accounting estimates and errors while finalizing the financial statements for the year ended