Ind AS 16, “Property, Plant and Equipment,” is an accounting standard that provides guidance on the recognition, measurement, depreciation, and disclosure of property, plant, and equipment in an entity’s financial statements. The “deemed cost exemption” is a provision in Ind AS 16 that allows entities to measure an item of property, plant, and equipment at a value other than its fair value as at the date of transition to Ind AS.
The deemed cost exemption is relevant when an entity first adopts Ind AS and is transitioning from a previous accounting framework (such as Indian GAAP) to Ind AS. Under this exemption, an entity can choose to measure an item of property, plant, and equipment at one of the following values as of the date of transition to Ind AS:
Carrying Amount as per Previous GAAP: The entity can use the carrying amount of the property, plant, and equipment as per the previous GAAP as its deemed cost under Ind AS. This approach allows for continuity in carrying values without revaluation.
Fair Value: Alternatively, the entity can measure the item of property, plant, and equipment at its fair value as at the date of transition to Ind AS. This would involve revaluing the asset to fair value as per Ind AS 16 requirements.
The deemed cost exemption is provided to ease the transition to Ind AS and to avoid the potential volatility that might arise due to the immediate adoption of fair value accounting for all property, plant, and equipment. It allows entities to choose this exemption for each individual item of property, plant, and equipment, and the choice should be applied consistently to all items of the same class of property, plant, and equipment.
