Ind AS 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.
Ind AS 16 decides what goes into the cost of a plant, how that cost is split into parts that wear out at different speeds, and how the asset is carried afterwards, at cost or at a revalued amount. It also covers the dismantling obligation that must be added to the cost at the start. This guide takes a plant with three components and a dismantling obligation from cost to a revaluation and a change in the dismantling estimate.
Cost includes the purchase price, directly attributable costs and the initial estimate of dismantling and restoration (paragraph 16). Each part with a significant cost is depreciated separately (paragraph 43). Under the revaluation model, a surplus goes to OCI and a deficit to profit or loss asset by asset (paragraphs 39 and 40), and later changes in a decommissioning liability follow Appendix A.
Ind AS as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015). Amendments notified after 1 April 2025 are not reflected in this article and should be checked on mca.gov.in. A clean fixed asset register with component data is the base of sound books of accounts for an Ind AS company.
What the paragraphs require
| Paragraph | Requirement | What it means in practice |
|---|---|---|
| 7 | Recognise when future benefits are probable and cost is reliably measurable | Apply at the time costs are incurred (paragraph 10) |
| 12-14 | Day-to-day servicing is expensed; replacement parts and major inspections are capitalised and the old part derecognised | Capitalise a furnace relining, not routine repairs |
| 16-17 | Cost = purchase price net of trade discounts, directly attributable costs, dismantling and restoration estimate; testing cost net of sale proceeds of samples | The excess of sale proceeds over testing cost is deducted from cost, not taken to profit (paragraph 17(e)) |
| 19-20 | Not part of cost: opening a new facility, staff training, administration overheads, initial operating losses | Stop capitalising once the asset can operate as intended |
| 29-31 | Policy by class: cost model, or revaluation model if fair value can be measured reliably | Revalue often enough that carrying amount is not materially different from fair value |
| 35-38 | Adjust gross carrying amount or eliminate accumulated depreciation; revalue the whole class | Rolling revaluations only within a short period |
| 39-41 | Increase to OCI (revaluation surplus), reversing earlier P&L decreases; decrease to P&L unless covered by that asset's surplus; surplus may be transferred to retained earnings, not through profit or loss | Asset-by-asset, not class-by-class |
| 43-47 | Depreciate significant parts separately; the remainder separately | Group parts with the same life and method |
| 50-55, 60-62A | Allocate depreciable amount over the useful life; review residual value, life and method each year; revenue-based depreciation is not appropriate | Land is not depreciated (paragraph 58) |
| 67-72 | Derecognise on disposal or when no benefits are expected | Gain or loss to profit or loss |
| Appendix A | Changes in a decommissioning liability adjust the asset (cost model) or the revaluation surplus or profit or loss (revaluation model); unwinding is a finance cost | Not capitalised under Ind AS 23 (Appendix A, paragraph 8) |
For companies on AS, the corresponding standard is explained in our AS 10 guide; the standard is outlined in Ind AS 16 Property, Plant and Equipment.
The method
- Build up cost under paragraph 16, excluding the items in paragraphs 19 and 20.
- Measure the dismantling obligation at its present value (Ind AS 37, as Ind AS 16 paragraph 18 points out) and add it to the cost.
- Split the cost among significant parts (paragraph 44).
- Fix the useful life and method of each part; depreciate from the date available for use (paragraph 55).
- Unwind the discount each year in finance cost.
- If the class is revalued, adjust each asset and book the surplus or deficit (paragraphs 39 and 40).
- When the liability estimate changes, apply Appendix A.
Worked example
The entity and all figures in this example are invented for illustration. The discount rate is assumed, for arithmetic only.
Krishna Steel Processing Limited buys a captive power plant that is ready for use on 1 April of Year 1. Its policy for the class "plant" is the revaluation model.
Step 1: cost (paragraphs 16 and 17).
| Element | Rs |
|---|---|
| Purchase price net of trade discount, including non-refundable taxes | 6,40,00,000 |
| Installation and assembly | 70,00,000 |
| Testing cost 38,00,000 less sale proceeds of samples 18,00,000 (paragraph 17(e)) | 20,00,000 |
| Professional fees | 10,00,000 |
| Cost before dismantling | 7,40,00,000 |
Rs 5,00,000 spent on staff training and launch advertising is expensed (paragraph 19).
Step 2: dismantling obligation (paragraph 16(c)). Estimated cost Rs 1,00,00,000 payable at the end of 20 years, discounted at 8 per cent (assumed): factor 0.214548, present value Rs 21,45,482. It is added to the boiler, the component with the 20-year life.
Step 3: components (paragraphs 43 and 44) and cost.
| Component | Useful life (years) | Cost before dismantling (Rs) | Dismantling (Rs) | Total cost (Rs) | Annual depreciation (Rs) |
|---|---|---|---|---|---|
| Boiler | 20 | 4,00,00,000 | 21,45,482 | 4,21,45,482 | 21,07,274 |
| Turbine | 10 | 2,40,00,000 | 2,40,00,000 | 24,00,000 | |
| Control systems | 5 | 1,00,00,000 | 1,00,00,000 | 20,00,000 | |
| Total | 7,40,00,000 | 21,45,482 | 7,61,45,482 | 65,07,274 |
Depreciation is straight line to nil residual value (assumed).
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Plant: boiler | 4,21,45,482 | |
| Plant: turbine | 2,40,00,000 | |
| Plant: control systems | 1,00,00,000 | |
| To Bank | 7,40,00,000 | |
| To Provision for decommissioning | 21,45,482 |
Step 4: unwinding (Appendix A, paragraph 8). The liability rises each year at 8 per cent, with the charge shown as finance cost, rounded to the rupee.
| Year | Opening (Rs) | Unwinding (Rs) | Closing (Rs) |
|---|---|---|---|
| 1 | 21,45,482 | 1,71,639 | 23,17,121 |
| 2 | 23,17,121 | 1,85,370 | 25,02,491 |
| 3 | 25,02,491 | 2,00,199 | 27,02,690 |
Check: 27,02,690 equals Rs 1,00,00,000 discounted for 17 remaining years at 8 per cent (factor 0.270269).
Step 5: revaluation at the end of Year 3 (paragraphs 31, 35, 39, 40). After three years of depreciation the carrying amounts are boiler Rs 3,58,23,660 (4,21,45,482 x 17/20), turbine Rs 1,68,00,000 and control systems Rs 40,00,000: total Rs 5,66,23,660. A valuer reports fair values of Rs 4,08,00,000, Rs 1,92,00,000 and Rs 38,00,000. The whole class is revalued (paragraph 36), and each asset is treated separately.
| Asset | Carrying amount (Rs) | Fair value (Rs) | Surplus (deficit) (Rs) | Where |
|---|---|---|---|---|
| Boiler | 3,58,23,660 | 4,08,00,000 | 49,76,340 | OCI, revaluation surplus |
| Turbine | 1,68,00,000 | 1,92,00,000 | 24,00,000 | OCI, revaluation surplus |
| Control systems | 40,00,000 | 38,00,000 | (2,00,000) | Profit or loss, no surplus to absorb it (paragraph 40) |
| Total | 5,66,23,660 | 6,38,00,000 | 71,76,340 |
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Plant: boiler | 49,76,340 | |
| Plant: turbine | 24,00,000 | |
| To Revaluation surplus (OCI) | 73,76,340 | |
| Revaluation loss (profit or loss) | 2,00,000 | |
| To Plant: control systems | 2,00,000 |
From Year 4 the remaining lives are 17, 7 and 2 years, giving annual depreciation of Rs 24,00,000 (4,08,00,000 / 17), Rs 27,42,857 (1,92,00,000 / 7) and Rs 19,00,000 (38,00,000 / 2): Rs 70,42,857 in all (paragraph 61 requires the pattern to be reviewed each year). Deferred tax on the surplus is explained in deferred tax under Ind AS 12.
Step 6: a change in the dismantling estimate (Appendix A, paragraphs 5 and 6). Immediately after the revaluation the company raises its estimate to Rs 1,20,00,000 payable in 17 years. At the unchanged 8 per cent, the liability becomes 1,20,00,000 x 0.270269 = Rs 32,43,227, an increase of Rs 5,40,537 over Rs 27,02,690. Because the asset is under the revaluation model, the increase is recognised in OCI to the extent of the credit balance in that asset's revaluation surplus (Rs 49,76,340 for the boiler), so it all goes to OCI.
| Particulars | Debit (Rs) | Credit (Rs) |
|---|---|---|
| Revaluation surplus (OCI): boiler | 5,40,537 | |
| To Provision for decommissioning | 5,40,537 |
Check. Revaluation surplus after both entries = 73,76,340 - 5,40,537 = Rs 68,35,803, made up of boiler 44,35,803 and turbine 24,00,000. Total cost 7,61,45,482 less three years' depreciation (65,07,274 x 3 = 1,95,21,822) gives 5,66,23,660, the carrying amount used in Step 5.
Presentation and disclosure
Paragraphs 73 to 79 of the standard require, for each class, the measurement bases, depreciation methods and lives, the gross carrying amount and accumulated depreciation, and a reconciliation of opening and closing carrying amounts; for revalued classes they add the effective date, whether an independent valuer was used, and the revaluation surplus movement. For the balance sheet lines in which these amounts sit, see our post on the Schedule III format of financial statements. Impairment testing of the plant follows Ind AS 36.
Common mistakes
- Depreciating the whole plant at one rate despite components with different lives.
- Leaving the dismantling obligation out of cost, or capitalising its yearly unwinding (Appendix A, paragraph 8).
- Revaluing one asset in a class and not the rest (paragraph 36).
- Taking a net class-level surplus when one asset has a deficit with no surplus to absorb it (paragraph 40).
- Transferring the revaluation surplus to retained earnings through profit or loss (paragraph 41).
- Including initial operating losses or training in cost (paragraphs 19 and 20).
Need help with fixed asset accounting under Ind AS?
If your fixed asset register is still a single line per asset, with no component split, no decommissioning item and no revaluation trail, we can restructure it and prepare the entries. Our team handles this within books of accounts support so the register, the ledger and the disclosures agree.
Key takeaways
- Cost includes the dismantling estimate at present value.
- Depreciate each significant component over its own life.
- Revalue a whole class; surplus to OCI and deficit to profit or loss by asset.
- Unwinding of the decommissioning discount is a finance cost.
- A change in the liability follows Appendix A and, under revaluation, runs through the surplus first.
Read next
- Borrowing costs under Ind AS 23: qualifying asset, capitalisation rate and period
- Provisions under Ind AS 37: recognition, measurement, discounting and onerous contracts
- Impairment of assets under Ind AS 36: CGU, value in use and goodwill
- AS 10 Property, Plant and Equipment for non-Ind AS companies
Disclaimer: Based on the Indian Accounting Standards as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015) and, where named, the ITFG clarification bulletins of ICAI, as consulted on 4 October 2026. The worked example uses invented figures. Amendments notified after 1 April 2025 should be checked on mca.gov.in. This article is general information, not legal advice; check the official text before acting.