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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. If the company had wrongly capitalised the operating losses and the deferred-credit interest, by how much would the plant's carrying amount be overstated?
A₹4,00,000
B₹2,50,000
C₹3,25,000
D₹6,50,000
Answer & Solution
Correct answer: D. ₹6,50,000
1. The two items that must be excluded under AS 10 are operating losses ₹4,00,000 and deferred-credit interest ₹2,50,000.
2. Wrongly capitalising both inflates the asset cost by their sum.
3. Overstatement = 4,00,000 + 2,50,000 = ₹6,50,000.
_Source: ICAI BoS CA Intermediate Paper 1 (Advanced Accounting), Sept 2025 MCQ — Q.9, AS 10 Property, Plant & Equipment._
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