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KPK Ltd is installing a new plant: supplier's invoice ₹45,00,000; estimated dismantling cost after 5 years ₹3,25,000; initial operating losses before commercial production ₹4,00,000; interest to supplier for deferred credit ₹2,50,000; initial delivery and handling ₹1,85,000; site preparation ₹5,00,000; consultants' fees for advice on acquisition ₹6,75,000. Which of the following amounts is NOT capitalised as part of the plant's cost under AS 10?
AInitial operating losses of ₹4,00,000
BSite preparation of ₹5,00,000
CInitial delivery and handling of ₹1,85,000
DConsultants' fees of ₹6,75,000
Answer & Solution
Correct answer: A. Initial operating losses of ₹4,00,000
1. Site preparation, delivery & handling and consultants' fees are directly attributable costs of bringing the plant to working condition, so they are capitalised.
2. Initial operating losses before commercial production are not a cost of bringing the asset to working condition.
3. Hence the ₹4,00,000 operating losses are excluded and expensed.
_Source: ICAI BoS CA Intermediate Paper 1 (Advanced Accounting), Sept 2025 MCQ — Q.9, AS 10 Property, Plant & Equipment._
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