Deemed Cost explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Choosing a transition exemption is not only a measurement decision — it permanently resets what the fixed asset note shows as cost.
The three elections
| Provision | Election |
|---|---|
| Ind AS 101 paragraph D5 | Measure an item of PPE at the date of transition at its fair value, using that as deemed cost |
| Ind AS 101 paragraph D6 | Use a previous GAAP revaluation as deemed cost |
| Ind AS 101 paragraph D7AA | Consider the previous GAAP carrying amount of all its property, plant and equipment as deemed cost on the date of transition |
The presentation consequence
In case when a company applies Paragraph D5 or Paragraph D7AA, the deemed cost considered on the date of transition shall become the new "gross block" and accordingly presented in the reconciliation statement as required by Division III to Schedule III.
Before transition, the fixed asset note showed original cost, accumulated depreciation to date, and net book value. After a D5 or D7AA election, the net figure at transition becomes the gross figure going forward — accumulated depreciation restarts from nil.
That is arithmetically necessary. Deemed cost is the cost from the transition date onward; there is no accumulated depreciation against it because no depreciation has yet been charged on that amount.
But it does cost the reader something real. Original cost and accumulated depreciation together indicate how far through its life an asset base has run — a fleet carried at 20% of gross cost is close to replacement, one at 80% is new. After the reset, gross and net are equal at transition and the age profile of the asset base is no longer visible from the note.
Hence the concession that follows: in case a company wants to disclose information regarding gross block of assets, accumulated depreciation and provision for impairment as per previous GAAP, the same may only be disclosed as an additional information by way of a note forming part of the financial statements.
Note the word only. The previous GAAP figures cannot be presented as the gross block or within the Schedule III reconciliation — they may accompany it as a separate note, and nowhere else.
Which elections trigger the reset
The instruction names paragraph D5 or paragraph D7AA. Both replace the carrying amount with a single figure — fair value in the first case, previous GAAP carrying amount in the second — and in both the old cost history ceases to be the basis of the note.
Paragraph D6, which uses a previous GAAP revaluation as deemed cost, is not named in the same sentence. An entity applying it should consider carefully what its revalued amount represents and present the reconciliation on a basis consistent with that.
Presenting it in the reconciliation
- Take the deemed cost at the transition date as the opening gross carrying amount.
- Show accumulated depreciation and impairment as building up from the transition date onward.
- Run the ordinary movements — additions, disposals, acquisitions through business combinations, revaluation, other adjustments — on that basis.
- If previous GAAP gross block, accumulated depreciation and impairment provision are to be shown, place them in a separate additional note.
Common mistakes
- Carrying forward pre-transition accumulated depreciation against the deemed cost.
- Presenting the previous GAAP gross block inside the Schedule III reconciliation.
- Applying an election to some assets in a class and not others.
- Omitting the additional note where the age profile of the asset base is material to a reader.