MS AR 2018 (1)

5.1 Property, plant and equipment
Tangible fixed assets
These are stated at cost less accumulated depreciation and accumulated impairment losses, (if any), except
freehold land which is stated at cost less accumulated impairment losses (if any). Cost comprises of historical
cost, borrowing cost pertaining to the erection period and other directly attributable costs of bringing the assets
to its working condition.
Depreciation is charged to statement of profit or loss applying the reducing balance method at the rates given in
note 7.1 to the financial statements to write off the depreciable amount of each asset over its estimated useful life.
Depreciation is charged from the date when the asset becomes available for use up to the date of its disposal.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate,
only when it is probable that future economics benefits associated with the item will flow to the Company and the
cost of the item can be measured reliably. Cost incurred to replace a component of an item of property, plant
and equipment is capitalized and the asset so replaced is derecognized. The cost of the day to day servicing of
property, plant and equipment is charged to statement of profit or loss.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or loss on disposal or de-recognition (calculated as the difference
between the net disposal proceeds and carrying amount of the asset) is taken to statement of profit or loss.
Impairment test for property, plant and equipment is performed when there is an indication of impairment. At
each period end, an assessment is made to determine whether there is any indication of impairment. If any such
indications exist, an estimate of the recoverable amount is calculated. The recoverable amount of an asset or
cash-generating unit is the greater of its value in use and its fair value less costs to sell. If the carrying amount of
the asset exceeds its recoverable amount, the property, plant and equipment is impaired and an impairment loss
is charged to the statement of profit or loss so as to reduce the carrying amount of property, plant and equipment
to its recoverable amount.
Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length
transaction between knowledgeable and willing parties. Value in use is determined as the present value of the
estimated future cash flows expected to arise from the continued use of the property, plant and equipment in its
present form and its eventual disposal.
An impairment loss is recovered if there has been a change in the estimate used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had
been recognized.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash
inflows of other assets or groups of assets (the “cash-generating unit, or CGU”).
Capital work-in-progress:
Capital work-in-progress is stated at cost less identified impairment losses, if any. All expenditure connected with
specific assets incurred during installation and construction period are carried under capital work-in-progress.
These are transferred to specific assets as and when these are made available for use.
Major spare parts and standby equipment:
Major spare parts and stand-by equipment are stated at cost less identified impairment losses, if any and qualify
as property, plant and equipment when an entity expects to use them during more than one year. Transfers are
made to tangible fixed assets category as and when such items are available for use.
96 MUGHAL IRON & STEEL INDUSTRIES LIMITED