Status of certain provisions of AS 10, Accounting for Fixed Assets, pursuant to the issuance of AS 19, Leases and AS 16, Borrowing Costs

1. Accounting Standard (AS) 19, Leases, has come into effect in respect of assets leased during accounting periods commencing on or after 1-4-2001. AS 19 also applies to assets acquired on hire purchase during accounting periods commencing on or after 1-4-2001. Accordingly, paragraphs 15.1 and 33 of Accounting Standard (AS) 10, Accounting for Fixed Assets, which deal with assets acquired on hire purchase terms, are not applicable in respect of assets acquired on hire purchase during accounting periods commencing on or after 1-4-2001.

2. Pursuant to issuance of Accounting Standard (AS) 16, Borrowing Costs, provisions of paragraph 9.5 of Accounting Standard (AS) 10, Accounting for Fixed Assets, stand withdrawn to the extent they deal with borrowing costs. Paragraph 9.5 of AS 10 is reproduced below:

“9.5 If the interval between the date a project is ready to commence commercial production and the date at which commercial production actually begins is prolonged, all expenses incurred during this period are charged to the profit and loss statement. However, the expenditure incurred during this period is also sometimes treated as deferred revenue expenditure to be amortised over a period not exceeding 3 to 5 years after the commencement of commercial production.”

It may be noted that paragraph 9.5 of AS 10 as reproduced above relates to “all expenses” incurred during the period. This expenditure would also include borrowing costs incurred during the said period. Since AS 16 specifically deals with the treatment of borrowing costs, the treatment provided by AS 16 would prevail over the provisions in this respect contained in AS 10, as the provisions of AS 10 are general in nature and apply to “all expenses”.

It may be noted that paragraphs 9.2 and 20 (except the first sentence) of AS 10, Accounting for Fixed Assets, have already been withdrawn pursuant to issuance of AS 16.