According to the querist, Schedule VI requires items to be exhibited like land, buildings, plant and machinery and vehicles, and nowhere are the items in the nature of special tools, jigs and fixtures included in fixed assets. According to the querist, the nature of special tools, jigs and fixtures is similar to that of machinery spares and under AS 10, the expenditure on machinery spares can be either charged off to revenue on their issue to production or amortised if the expenditure is substantial. According to the querist, the company has taken into account three main criteria in accounting for special tools, jigs and fixtures. Assets Tangible objects or intangible rights owned by an enterprise and carrying probable future benefits. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset.
Depreciation includes amortisation of assets whose useful life is predetermined.
The Committee observes that special tools, jigs and fixtures, referred to by the querist, are assets as these objects carry probable future benefits. The special tools are consumed in the process of production over a relatively short period. The jigs and fixtures, on the other hand, are not consumed in the production of goods, their life span varies from 18 months to 36 months, and they can be modified for alternative use. The Committee also observes that jigs and fixtures of the nature specified by the querist fulfill all the criteria for qualifying as depreciable assets and, therefore, need to be depreciated over their useful life. Similarly, special tools that are expected to be used during more than one accounting period also need to be amortised to take cognisance of their consumption in the production process.