ICDS – 05 – Tangible fixed assets
This Income Computation and Disclosure Standard deals with the treatment of tangible fixed assets.
Definition of Tangible fixed assets
Land, building, machinery, plant or furniture held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business.
Identification of Tangible fixed assets
Stand-by equipment and servicing equipment are to be capitalized. Machinery spares shall be charged to the revenue as and when consumed. When such spares can be used only in connection with an item of tangible fixed asset and their use is expected to be irregular, they shall be capitalized.
Actual cost components
Positive list – The following shall be part of actual cost –
- purchase price, import duties and other taxes (Excluding those subsequently recoverable)any directly attributable expenditure on making the asset ready for its intended use
- expenses which are specifically attributable to construction of a project or to the acquisition of a tangible fixed asset or bringing it to its working condition
- expenditure incurred on start-up and commissioning of a project including the expenditure incurred on test runs and experimental production.
Negative list – The following shall not be part of actual cost –
- any trade discounts and rebates
- administration and other general overhead expenses if they do not relate to a specific tangible fixed asset
- expenditure incurred after the plant has begun commercial production (i.e. production intended for sale or captive consumption) [such expenditure shall be treated as revenue expenditure]
Self-constructed tangible fixed assets
In arriving at the actual cost of self-constructed tangible fixed assets, the same principles shall apply as those described in . Cost of construction that relate directly to the specific tangible fixed asset and costs that are attributable to the construction activity in general and can be allocated to the specific tangible fixed asset shall be included in actual cost. Any internal profits shall be eliminated in arriving at such cost.
- When a tangible fixed asset is acquired in exchange for another asset, the fair value of the tangible fixed asset so acquired shall be its actual cost.
- When a tangible fixed asset is acquired in exchange for shares or other securities the fair value of the tangible fixed asset so acquired shall be its actual cost.
Improvements and repairs
Expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is added to the actual cost.
Following disclosure shall be made in respect of tangible fixed assets, namely: –
(a) description of asset or block of assets;
(b) rate of depreciation;
(c) actual cost or written down value, as the case may be;
(d) additions or deductions during the year with dates; in the case of any addition of an asset, date put to use; including adjustments on account of –
(i) Central Value Added Tax credit claimed and allowed under the CENVAT Credit Rules, 2004;
(ii) change in rate of exchange of currency;
(iii) subsidy or grant or reimbursement, by whatever name called;
(e) depreciation Allowable; and
(f) written down value at the end of year.
ICDS – 05 – Tangible fixed assets
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