written by | February 26, 2022

Know the Application of Accounting Standard (AS)10 on Property, Plant and Equipment

Have you ever wondered what the differences are between the terms - Equipment, Plant, Property, etc? When we account for property in financial statements, then some uniform standards need to be applied to the types of properties and their true cost. The AS-10 or the Indian Accounting IND AS 10 Standards for Plant, Property and Equipment is the accounting and standards applied when grouping the Plant and Equipment (P&E) or business properties. This benefits those who read the business’ financial statements to appreciate and recognize the value of the investments made in such properties and their true cost in business. 

Did You Know? AS 10 depreciation is applicable due to several factors like maintenance, wear and tear, the lapse of time, obsolescence, exhaustion of resources, non-use of a machine, and market trends.

What are the AS 10 Accounting Standards?

To understand the changes occurring in the value of such business assets, accounting standards previously used AS 6 to calculate depreciation. However, AS10 also includes depreciation of the assets and hence AS6 is no longer applicable.

The Accounting Standard 10 properties do not include the following categories of assets.

(a) Assets that are biological and part of the agricultural activities (For example, cattle used in ploughing, livestock, etc) except plants that are classified as bearer plants (For example maize, rice, wheat, etc are bearer plants). While applying to the bearer plants, the AS10 standards are not applied to the production of such bearer plants. Note that the agricultural produce of bearer plants is accounted as harvested produce.

(b) Wasting assets like expenses in oil exploration, oil extraction, natural gas, minerals and the rights to mineral deposits or any other non-regenerative natural resource.

How is the cost of AS10 properties recognised?

The cost of P&E properties is an asset to the business according to the accounting standards on fixed assets, only if:

(i) It is clear that the asset’s economic value of the future benefits accrues to the enterprise.

(ii) The economic value or the asset’s cost can be measured reliably under AS10.

Asset grouping:

What is meant by the grouping of assets in a Class of PPE- Plant, Property and Equipment? The property, plant, and equipment of a company are considered as its fixed assets. In simple words, you cannot liquidate or sell these easily. Property, plant, and equipment (PP&E) are defined as non-current assets. These are long-term assets of a company.

The various classes or types of AS 10 fixed assets are as follows:

  • Land & building
  • Commercial Land
  • Ships
  • Machinery
  • Aircrafts
  • Motor vehicles
  • Office equipment
  • Furniture and fixtures
  • Bearer plants

Also read: 3 Golden Rules of Accounting, Explained with Best Examples

Depreciation methods: 

Each type of asset class may call for a different type of depreciation method to be applied to it. The various methods and depreciation accounting standards used in depreciation are as follows -

  1. Straight-line method: The straight-line method applies a uniform rate of depreciation over the asset’s life. For example, the useful life of a machine is ten years and its depreciation rate is 10% per annum on the residual value of the asset.
  2. Written down value or diminishing balance method: This method or WDV method charges a fixed amount to be deducted as depreciation over the life of the asset for each accounting or financial period. In other words, the depreciation cost is calculated as the rate of depreciation multiplied by its opening book value in that financial period. The net value is then the asset value that remains after deducting such accumulated depreciation amounts. 
  3. Production units method: Here the depreciation method is estimated on the number of production units and not on the life of the asset. Hence the depreciation value is higher in the first few years of the machine or production asset. Depreciation here is the [(Asset Cost minus the asset’s Residual Value) divided by the asset’s Production Capacity] and then multiplied by the asset’s produced number of units.

When to derecognise the carrying amount?

The carrying amount of fixed assets AS 10 items of plant, property, and equipment is derecognized if

  1. An asset is disposed of or removed from use by being sold or scrapped.
  2. If the asset is unable to justify any further economic benefits over its useful life, such an asset is disposed of by sale, as scrap, or on an as-is basis. 

Thus the loss or gain accruing due to such an asset’s de-recognition is transferred to the P&L account statement.

AS 10 standards for financial statements:

The financial statements reflect the value or cost of a business’ assets like plant, property, and equipment in the P&L Statements on its de-recognition.

The enterprise’s financial statements must reflect:

  • The accounting policy or basis of measurement used to arrive at the carrying amount
  • The applied method of depreciation in calculating the carrying amount.
  • The depreciation rates and the asset’s useful life.
  • The starting value, depreciation amount, and the end carrying value of the asset in each financial year or period
  • Any depreciation method changes applied.
  • All additions to the assets list.
  • All assets that are removed from use or retired from use.
  • Disposed of assets in the financial period/year.
  • Losses that occur due to depreciation, amortization and impairment.

The P&L financial statement is also to include 

  • Acquisition of property, plant and equipment PPE contractual commitments.
  • All expenses related to the carrying costs, value, amount or cost of PPE.
  • The value of assets being held for disposal in any financial period.

The PPE or Plant, Property, and Equipment values must also include the following details. Namely, 

  • The revaluation effective date.
  • Details about the involvement of an independent asset valuer.
  • The assumptions and methods used for calculating the value of the asset.
  • The surplus or loss due to the revaluation.

Also read: What is a Billing Software? - How Does It Help Small Business in Finances?

What are the economic values of an asset?

Under Accounting Standard 10 Revised Standards of accounting, the economic value of the asset is considered. Hence it is necessary to define a variety of unambiguous accounting values and methods to arrive at the cost or value of an asset. Let’s explore this topic.

The asset’s cost is the asset’s purchase price and should be the total price arrived at including non-refundable taxes, import duties, rebates, discounts, etc. It also includes the transportation costs to bring the asset to a specific location, the installation costs and the costs incurred to put the asset into production.

P& E or plant, equipment, business property, etc are considered tangible assets. Such tangible assets are used in the supply of services, goods, and the production of further services or goods.

The asset’s fair value means the amount, cost or value at which you can exchange this asset with another in a transaction involving two willing parties in barter-like transactions done at arm’s length, face-to-face, etc.

A loss due to impairment means that the carrying amount of such an asset is less than the asset’s recoverable amount. The difference amount is called the impairment loss.  For example, the value of a car after its useful life of 15 years may be just ₹1 L when its carrying value in your books of accounts may be ₹1.5L. Thus you have an impairment loss of ₹50,000.

Here the amount recoverable refers to the higher amount realized as the useful value when in use or the amount realized as its net selling price. For example, you sell your car (Buying Price ₹10L) with a useful life of 10 years and depreciation at 20% after the 5th year at a price of 8L ₹. Now the recoverable amount is ₹8L. If it continues in use its value is less than the 50% depreciation or ₹5L. You must consider the higher value of the two and hence the recoverable amount is ₹8L.

The asset’s residual value is the amount estimated to be received when the asset is disposed towards the ending of the period of its useful life. For example, if a car’s useful life is 15 years, the value at which the car can be sold in the 15th year is its residual value. Thus the residual value of an asset is the asset’s cost less its depreciation. Do note that each property classification or item of property is to be separately depreciated. You cannot depreciate your machinery cost and car costs together since they are separate dissimilar items. Also, the rates applicable to different items of the asset may be different. For example in an aircraft, the frames and metal body are depreciated at a different rate when compared to the aircraft engine.

Types of assets and their valuation:

 Accounting Standard 10 fixed assets or the value of the assets in an enterprise can be either 

  • Tangible Assets
  • Non-tangible Assets.

A tangible asset is an asset that can be seen, touched, etc For example a car, machine, etc. The non-tangible assets on the other hand have value but cannot be seen, touched, etc. For example, patents, mineral rights, franchise agreements, goodwill, copyrights, bond issue costs, etc.

To calculate the business value of the asset over some time, several factors like useful life, wear and tear of machines, etc are to be accounted for depending on the type of asset. An enterprise calculates the expenses of amortization and depreciation to reduce the tax liability due to an asset’s value or cost. By expensing the asset’s useful life by these methods the carrying cost of the asset is reduced and hence the tax liability is calculated on the residual value and not on the buying price of the asset.

Businesses use the following three methods to arrive at the cost of an asset.

  • Depreciation method: This method apportions a fixed depreciation expense or rate of value decrease over the asset’s useful life.
  • Amortization method: The cost of the asset is spread over its useful life.
  • Depletion method: The useful life of a natural asset that is being extracted from the earth ( For example, in the case of oils, minerals, timber etc) is calculated by the depletion.

Thus, Depreciation and Amortization are time-bound methods of calculating the business value of assets based on their useful life. These methods are used for tangible assets like P& E, vehicles, etc, while the depletion method is used to assess the cost of intangible business assets like oils, minerals, timber etc.


Depreciation Method

Amortization Method

Depletion Method

Type of asset

Fixed Tangible Assets

Intangible Assets

Extraction of natural resources


P&E, vehicles

Patents, copyrights, 

Minerals, oil, timber extraction


Can be seen and touched

Cannot be seen, touched

Can be seen and touched

Arrives at

Depreciated Value

Amortized Value

Residual Value

 Also read: Know What Is Closing Stock?

How to measure the asset’s cost?

To correctly assess the value of any property plant and equipment asset, the depreciation amounts are to be calculated and reduced from their actual value to arrive at the residual value. Such depreciation is calculated annually and reported in the P&L or profit and loss statement of each financial year. Note that the depreciation amounts are calculated based on the applicable rates systematically over the asset’s entire useful life while arriving at the cost of the asset for an FY.

A business can assess the cost of the asset in two ways.

Revaluation Model: The business can use this by selecting and applying the same cost or revaluation model across the entire classes of assets including the P&E. Thus, the revaluation cost model, firstly recognizes the property as an asset item of its accounting policy and then ensures that the accumulated impairment and depreciation costs do not exceed the actual cost of the asset.

Thus the revaluation model for the cost of the asset or property means that once the asset is classified, its fair value should be reliably determined. The asset is then carried at the amount that it is revalued for or the asset’s fair value less the accumulated impairment and depreciation amounts. Note that such revaluations of the asset’s cost are to be undertaken at regular intervals i.e. at least every financial year. This ensures that the fair value shown in the balance sheet on any date is not very different from the asset’s cost or fair value for the financial year.

Depreciation Model: The Depreciation model involves the allocation of a cost of a tangible asset across a timeframe of its utility. This is used to account for its declining value over a period of time. The total cost allocated by a company to depreciation expense over a period of time is called accumulated depreciation.

Differences between the IND AS 16 and the AS 10 standards:

Since both the IND AS 16 and the AS10 deal with Plant, Property, and Equipment when accounting for fixed assets, you will find the table below self-explanatory when it comes to the differences in the two standards.




Real Estate Developers Accounting 

AS 10 excludes explicitly real estate accounting from its scope. 

IND AS 16 does not exclude real estate accounting.


Recalculates retrospective recalculations of depreciation before being prospectively applied.

Prospectively applied to estimated changes in the estimated accounted values.

Inspection Costs Capitalization

AS 10 doesn’t include the capitalization of inspection costs.

The AS16 IND includes capitalization of major costs of inspections and the de-recognition of any such residual costs in the carrying value or the amounts due to prior cots of inspection.

Self-constructed assets 

AS 10 doesn’t refer to self-constructed assets.

In comparison, the IND AS 16 for self-constructed assets, states that unusual labour costs, wasted resources and materials used in the cost of self-constructed assets are not to be included in the cost of the asset.

Joint Ownership Assets

AS 10 is used for fixed joint-ownership assets.

While IND AS 31 covers such joint ownership assets the IND AS 16 doesn’t exclude or deal with such assets specifically.

Fixed Assets Retired from Active Use and the Assets Held for Sale

AS 10 accounts for the Fixed Assets Retired from Active Use and the Assets Held for Sale.

Fixed Assets Retired from Active Use and the Assets Held for Sale are not dealt within the IND AS 16.

 Also read: Know the Meaning and Format of Cost Sheet


The AS 10 property plant and equipment standards have been discussed in great detail in the above article. It is important that every entrepreneur, accountant, and the business person understands accounting standards to be able to evaluate the business costs and hence its profitability. Follow  Khatabook  for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.


Q: What is the cost of an asset?


The asset’s cost is the asset’s purchase price and should be the total price arrived at including non-refundable taxes, import duties, rebates, discounts, etc. It also includes the transportation costs to bring the asset to a specific location, the installation costs and the costs incurred to put the asset into production.

Q: When is AS 10 not applicable?


The AS10 properties do not include the following categories of assets.

(a) Assets that are biological and part of the agricultural activities (For example, cattle used in ploughing, livestock, etc) except plants that are classified as bearer plants (For example maize, rice, wheat, etc are bearer plants). 

(b) Wasting assets like expenses in oil exploration, oil extraction, natural gas, minerals and the rights to mineral deposits or any other non-regenerative natural resource.

Q: How is depreciation important in accounting?


Depreciation provides the true cost of business and its assets. It accounts for all business expenses like reduction in the asset values due to wear & tear and arrives at the residual value of the asset. Since the residual values tend to decrease over time, the total tax liability of the asset also reduces. Thus it is important in accounting to calculate the estimated business value and its taxability.

Q: Is Depreciation applied to all fixed assets?


Depreciation does not apply to all fixed assets. Assets that lose their value over a certain period of time are depreciated. Depreciation helps you to understand how the value of the asset, when compared to its original costs, declines with usage over time.

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