Depreciation on downward revalued non-current assets

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  • Avatar of Asad Ilyas
    Asad Ilyas
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    Why depreciation is charged on non current assets when they are even revalued downwards (impairment).


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    l1ttlem1ss
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    I would like to join.


    Avatar of alkemist
    alkemist
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    Depreciation is a charge for asset in use. Let’s say at the start of the year an asset has a value of carrying value of $90 (cost $100, accumulated depreciation $10) with a remaining useful life of 9 years and straight line depreciation. During the year, there is depreciation of $10 as per the depreciation policy. At the end of the year, the carrying value would be $80 but when the management does an impairment review, it is found that the asset is outdated and the net realisable value is $50, which is the higher of the value in use $40 and the net realisable value $50. The useful life is still 8 years. so the accounting treatment is as follows:

    Depreciation: $10
    Accumulated depreciation: ($10)

    Provision for Impairment loss: $30
    Accumulated depreciation: ($30)

    The net effect of the movements is as follows:
    - opening carrying value…………….90
    - Less: depreciation…………………(10)
    - Less: impairment loss…………….(30)
    ………………………………………..___
    - Closing carrying value…………….50
    ………………………………………..===

    If there had been a revaluation prior to the impairment loss, then the impairment loss would have been taken to the revaluation reserve to the extent that it would reverse any depreciation.

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