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Case Code: CLFIN018
Case Length: 4 pages
Period: 2020
Pub Date: 2020
Teaching Note:Available
Subject : Finance
Organization :Kavitha Textiles (Fictitious)
Industry : Textiles Industry
Countries : India

Fixed Assets Accounting-Identification and Classification of Expenses as Fixed Assets



Kavitha, a saree designer, started a saree manufacturing unit. Even before starting production, she had to incur various expenses during different stages of launching the manufacturing unit and starting commercial operations. The present case study provides the scope to discuss the nature of various expenses incurred on starting a new manufacturing unit, the kind of expenditure that is considered a long term investment, the kind of assets that are considered fixed assets, and the various costs that add up to the total cost of the fixed assets. The case can be used to discuss the principles and guidelines specified in Accounting Standard-10 (Accounting for Fixed Assets). The case study also provides the scope to discuss the nature and the treatment of operational expenditure.
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  • The process of identifying various categories of fixed assets.
  • Classification and allocation of costs incurred in the process of developing and utilizing fixed assets.
  • Application of Accounting Standard-10 (Accounting for Fixed Assets) to various categories of business enterprises.
Kavitha had started the process of launching a saree manufacturing unit on leased land after undertaking a detailed study and obtaining all the required permissions. The manufacturing unit was called Kavitha Textile Manufacturers (KTM) and the process was started on April 1, 2018. Construction work for the unit was given to a construction company and it was estimated to be completed at a cost of Rs. 1 million. All the construction costs had to be borne by the construction company. However, Kavitha spent around Rs. 0.10 million on the preparation of the construction plan and on other consultancy charges. Simultaneously, Kavitha placed an order for manufacturing equipment. Once the orders had been processed, the suppliers of the manufacturing equipment visited the construction site and made arrangements for the installation of the equipment at the desired places. In addition to the price of the equipment, the suppliers charged an additional sum in the form of site preparation charges, delivery charges, and other installation and professional charges required to bring the equipment, install it in the plant, and make it ready for production ..


Accounting; Accounting principles; Accounting Concepts; Accounting Standard-10; Fixed Assets Accounting; Classification of Expenditure; Allocation of costs to fixed assets; Decision-making; Profit and loss account; balance sheet; Rationale behind classification of expenses as fixed assets

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