The ICDS on tangible fixed assets is based on the Accounting
Standard on Accounting for Fixed Assets (AS-10) notified by The
Companies Accounting Standards Rules, 2006. The important
provisions of the ICDS are discussed below:
Identification of Tangible Fixed Assets
"Tangible fixed asset" is an asset being 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
Stand-by equipment and servicing equipment are to be
capitalised. 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 capitalised.
Components of Actual Cost
The actual cost of an acquired tangible fixed asset shall
comprise its purchase price, import duties and other taxes,
excluding those subsequently recoverable, and any directly
attributable expenditure on making the asset ready for its intended
use. Any trade discounts and rebates shall be deducted in arriving
at the actual cost.
The cost of a tangible fixed asset may undergo changes
subsequent to its acquisition or construction on account of
(i)price adjustment, changes in duties or similar factors;
(ii) exchange fluctuation as specified in Income Computation
and Disclosure Standard on the effects of changes in foreign
Administration and other general overhead expenses are to be
excluded from the cost of tangible fixed assets if they do not
relate to a specific tangible fixed asset. 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, shall be included as a part of the cost of the project
or as a part of the cost of the tangible fixed asset.
The expenditure incurred on start-up and commissioning of the
project, including the expenditure incurred on test runs and
experimental production, shall be capitalised. The expenditure
incurred after the plant has begun commercial production, i.e.
production intended for sale or captive consumption, 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 as specified above shall apply.
Cost of construction that relates 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 costs.
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
An Expenditure that increases the future benefits from the
existing asset beyond its previously assessed standard of
performance is added to the actual cost.
The cost of an addition or extension to an existing tangible
fixed asset which is of a capital nature and which becomes an
integral part of the existing tangible fixed asset is to be added
to its actual cost. Any addition or extension, which has a separate
identity and is capable of being used after the existing tangible
fixed asset is disposed of, shall be treated as separate
Valuation of Tangible Fixed Assets in Special Cases
Where a person owns tangible fixed assets jointly with others,
the proportion in the actual cost, accumulated depreciation and
written down value is grouped together with similar fully owned
tangible fixed assets.
Where several assets are purchased for a consolidated price,
the consideration shall be apportioned to the various assets on a
Depreciation on tangible fixed assets shall be computed in
accordance with the provisions of the Income-tax Act.
Income on Transfers
Income on transfer of tangible fixed assets shall be computed
in accordance with the provisions of the Income-tax Act.
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