Cost, residual value and depreciable amount

(i) Cost of an asset. “Cost is the amount of cash or cash equivalents paid, or the fair value of the other consideration given, to acquire an asset at the time of its acquisition or construction” (AS 10, para 6). For property, plant and equipment it includes the purchase price (with non-refundable duties and taxes, less trade discounts) and the costs directly attributable to bringing the asset to working condition, such as freight and installation.

(ii) Residual value of an asset. The residual value is the estimated amount the enterprise would currently obtain from disposing “of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life” (AS 10, para 6). It is reviewed at least at each year end.

(iii) Depreciable amount. The “depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is the systematic allocation of the depreciable amount” (AS 10, para 6) over the asset's useful life. Example: a machine costing ₹1,00,000 with a residual value of ₹10,000 has a depreciable amount of ₹90,000; over 9 years on the straight line, depreciation is ₹10,000 a year.