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Hi sir,
I have a question in related to depreciation of non current asset.
For instance, The entity purchases a non current asset (e.g a laptop) but it maintains it in its warehouse and do not use it, although the laptop is available for use.
in this case, does the entity charge depreciation for that NCA?Firstly, it would be very strange for a company to buy a laptop and then not use it 🙂
However the accounting standard requires depreciation to be charged, but the method used is up to the company. They could choose to depreciate based on the hours used each year (in which case there would be no depreciation in years it would be used).
This is unusual and as far as the exam in concerned, the only two ways you are expected to be able to calculate are straight line and reducing balance, as I explain in the free lectures.
I assume that you are watching the lectures – they are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
Sir, let us change the question a little bit. Let us suppose that the entity has bought a non current asset on 1st January, 2000. After use it for 2 years, the entity stopped to utilize it and remain it in its warehouse temporarily. The entity has intention to restart using that NCA afte some period of time.
My question is that
1) In this case, does the entity charge depreciation during the period when the entity does not use it?It is up to the entity to decide – there are no rules! It depends on their accounting policies as to how they have decided to charge depreciation.
Again, have you watched the free lectures?
Also, I don’t really know why you are asking because it is of no relevance for the Paper F3 exam – they do not ask this sort of question 🙂
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