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 business.
  • 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; or
    • (ii) exchange fluctuation as specified in Income Computation and Disclosure Standard on the effects of changes in foreign exchange rates.
  • 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.

Non-monetary Consideration

  • 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 asset.

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 fair basis.

Depreciation

  • 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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Originally published August 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.