- This topic has 5 replies, 2 voices, and was last updated 7 years ago by
.
- Posts
I have a query regarding “from what time depreciation begins”? I mean depreciation begins
• When the asset is ready for its intended use? or
• When the asset is available for use?For example in a following scenario from what time depreciation will begin?
ABC Ltd. began construction of a factory building (qualifying asset) on 1 March 20X13 for its own use. The construction completed on 31 March 20X16 i.e. factory building was ready for its intended use at 1 April 20X16. However, the building was available for use on 1 July 20X16. The total cost of factory building (including borrowing cost capitalised) is $1,000,000. Useful life of the asset is 50 years & nil residual value. Financial year is Jan-Dec.Whether depreciation should be charged for 9 months (i.e. 1 April 20X16 – 31 December 20X16) when the asset is ready for its intended use? i.e. ($1,000,000/50years)*9/12 =$15,000
OR
Whether depreciation should be charged for 6 months (i.e. 1 July 20X16 – 31 December 20X16) when the asset is available for use? i.e. ($1,000,000/50years)*6/12 =$10,000
Under the matching concept ….
We try to depreciate an asset by systematically writing it off against the profits for the period during which that asset has contributed to those activities
If the asset is ready, but doesn’t start to be used in the generation of revenues and profits, then the depreciation should be matched only to the period during which that asset is being used
OK?
Well my point is not that
Simply I want to know…..
“ASSET IS READY FOR ITS INTENDED USE” means the same as “ASSET IS AVAILABLE FOR USE” or these terms mean different?
It is because A/c to IAS 16: Depreciation begins when an asset is available for use
Good point! I’m still claiming that depreciation should be from the date the asset actually starts to contribute to revenues and profits … but I’m going to check the wording of the IAS
I’ve checked the IAS and believe that this is relevant …
“The depreciation method used should reflect the pattern in which the asset’s economic benefits are consumed by the entity [IAS 16.60];”
and that suggests to me that depreciation is charged to match the actual use of the asset
OK?
- The topic ‘IAS 23 + IAS 16’ is closed to new replies.