The Hindu Business Line : ICAI moots changes in accounting of revalued assets depreciation

Global alignment
"We are aligning our standards with the best international practice and therefore, this change. We are moving to a conceptually superior approach."

New Delhi , Aug 3

Come April 1 2008, companies and other commercial enterprises would have to adopt a "fair value" approach for accounting of depreciation on their revalued assets.

For this purpose, the accounting rules on depreciation on property and plant and equipment are to be changed from that date.

As per the proposed new accounting norms, depreciation charged to the profit and loss account should be based on the revalued amount.

Companies cannot nullify the impact of revaluation in the profit and loss account by withdrawing an equivalent amount from the revaluation reserve.

"We are aligning our standards with the best international practice and therefore, this change. We are moving to a conceptually superior approach," Mr S.C. Vasudeva, Chairman of the Accounting Standards Board of the Institute of Chartered Accountants of India (ICAI), told newspersons.

To nullify the impact of revaluation on the profit and loss account, companies currently withdraw an amount from revaluation reserves and credit it to their profit and loss account.

The amount withdrawn is the difference between the depreciation on the revalued carrying amount of the asset and depreciation on its original cost.

Mr Vasudeva said that entities will have to first decide whether to follow the cost model or the revaluation model for valuation of property, plant and equipment.

The ICAI President, Mr T.N. Manoharan, said that once an entity decides to revalue an item of property, plant and equipment, it should revalue the entire class of property, plant and equipment to which that item belongs, whereas currently it is permissible to revalue assets on selective basis.

The Central Council of the ICAI today approved the revised accounting standard (AS) 10, `Property, Plant and Equipment', which includes the changes on depreciation accounting.

It has also empowered Indian chartered accountants to operate in corporate form for providing management consultancy services.

A practicing chartered accountant can now be a Managing Director of a company exclusively dealing with management consulting services and continue to have a certificate of practice.