Ayman Bose – Accounting of Property, Plant, and Equipment under IND AS

Abstract

After completing his MBA, Ayman has started his career as Financial Controller at ACP Ltd., a pharmaceutical company planning its Initial Public Offer (IPO) in six months. ACP has several factories in India and Europe. Over the last five years, it has engaged in acquisition, depreciation, impairment, leasing, and disposal of various items of Property, Plant, and Equipment (PPE). The case enables instructors to not only enrich student understanding of PPE related issues and PPE accounting under the new IND AS, but also sensitizes students about the pressure to report better financials, which a company going for an IPO faces. The case has six parts, and each part is focused on the following specific tasks: (1) To decide whether to capitalize or expense and determine historical cost; (2) To compute depreciation and carrying amount before and after a change in depreciation method, and change in estimates of useful life and residual value; (3) To test for impairment, compute impairment loss, and recognize impairment, and also test for and recognize reversal of impairment loss; (4) To ascertain gain or loss on exchange of a PPE with another asset; (5) To classify two leases into operating or finance lease, and determine their impact on financial statement and profits; and (6) To analyze depreciation policy and PPE of a company relative to its industry peers.