Precision Tools Ltd. provides the following details related to its fixed assets for the year ended 31st March 2025: The company purchased a machine…

(a) As per AS 10, Property, Plant and Equipment, the cost of an item of PPE includes: (a) Purchase price including import duties and non-refundable taxes, (b) Directly attributable costs to bring the asset to working condition (e.g., transport, installation, trial run), (c) Any trial run net costs (i.e., cost – recoverable proceeds). Particulars Amount (₹) Purchase Price 12,00,000 Freight & Insurance 60,000 Erection Charges 40,000 Net Cost of Testing (25,000 + 10,000 – 8,000) 27,000 Cost of Machinery 13,27,000 Recognition of Motors Replacement Particulars ₹ Cost of Motors 50,000 Less: Depreciation 35,000 Carrying Amount of Motors 15,000 Accounting: The company should derecognize the existing Carrying Amount of Motors replaced of 15,000. Further, the acquisition cost of new motors of 1,20,000 would be capitalized as a separate component. Costs of relocating or reorganising part or all of the operations of an enterprise are not included in the carrying amount of an item of PPE. Hence Costs of relocation of 36,000 (12,000 +18,000 +6,000) of PPE are not capitalized. Thus, entire expense to be charged off to Profit and Loss A/c. Thus, total capitalization (net off derecognition) = 14,32,000 (13,27,000 + 1,20,000 - 15,000).