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In my company, a lot of non-current assets have been fully depreciated since a long time but they are still in use today and are reported on Statement of Financial Position each year as Cost less Accumulated depreciation (i.e – NBV = 0).
My question is that if the company is deriving benefits from its assets every year and generating revenue through it but they don’t have a related expense to match against it (i.e- Depreciation), then isn’t it contradicting with the matching concept of Accounting?
And also just an added note, I understand that even if assets are fully depreciated, a company can still use it. I mean, depreciation is an accounting tool only, but still, if its fully depreciated and still in use, then shouldn’t it be revalued OR if it is close to being fully depreciated, then shouldn’t the useful life be revised?
You’ve hit the nail on the head right at the end of your second post!
Depreciation is a mechanism for writing the cost of an asset off over its estimated useful life
Clearly, as time goes by, reassessment should be made of estimated useful remaining life and depreciation figures should be adjusted correspondingly
In theory no tangible non-current asset should ever be written down to zero whilst it is still in use
Instead, estimated useful remaining life is regularly reassessed
OK?
Yes but this company uses the cost model and let many of its assets get to zero value without ever reassessing it nor revised its useful life. You are right as to that they should have never let this situation happen of letting the values reach to zero. But it has happened.. Now they cannot revise its useful life at this moment because the net book value is zero. Whether they make it 10 years or 20 years, etc. the depreciation would be zero as the numerator is zero.
So, the only option left is to revalue its assets?
Yes … but is it worth the exercise? If the assets have reached the end of their original estimated useful life, surely they can’t have (shouldn’t have!) many more years left in them
If they, in fact, DO have many more years left, then it seems that the depreciation base needs a serious review
OK?
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