- This topic has 2 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)? i.e.
($1,000,000/50years)*9/12 =$15,000OR
Whether depreciation should be charged for 6 months (i.e. 1 July 20X16 – 31 December 20X16)? i.e.
($1,000,000/50years)*6/12 =$10,000Depreciation will run for 9 months i.e from the date it was ready for its intendended use….why? If you buy a new Benz or machine for 10000$ today and you just left it parked at your guarage for for lets say one week….how much will it be sold in 1 week time? definitely less than 10k…..so regardless of when asset is put to use otherwise if specifically stated by the examiner that an asset is depreciated based on machine hours…..if question is silent, assume depreciation starts from the date asset is ready for its intended use….
Hope this helps!
- You must be logged in to reply to this topic.