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assessing the reasonableness of useful economic life

Former userFormer user5y ago

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KimKimTutor5y ago#1
IMAGINE a company has (1) a lot of computer equipment, (2) a vehicle fleet. Management policy is to depreciate (1) over 3 years, (2) over 5 years. The capex budget shows that management plans to replace (1) next year, (2) the following year. If at the reporting date all the computer equipment was bought 3 years ago (i.e. fully depreciated), the capex budget plan is consistent with depreciation policy (there will be no depreciation next year which is the year of disposal). But if the cars were all bought 3 years ago, the capex budget plan is inconsistent with a useful life of 5 years (as they will only have been depreciated for 4 years when they are disposed of).
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