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“Inspect the capital expenditure budgets for the next few years to assess the appropriateness of the useful economic lives in light of plans to replace assets: verifies valuation.”
just want you corroborate the following thing maam:
Essentially what the above point is really trying to tell us is that the frequency with which similar assets/class of assets are being replaced will give us rough approximate of useful economic life of any similar asset just acquired?
OR
that we gotta compare the useful life allocated V/s the time remaining before we get the asset replaced?
the 1st or 2nd interpretation is correct?
Pls forgive me maam for bothering you so much
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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