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hello sir,
if an asset has subsequent cost in the middle of the an accounting year,do we account for its depreciation charge for the year?for example a company’s accounting year is from 1 january 2013 till 31decmber 2013.it capitalises a subsequent cost of 1000 on june 30 2013.do we depreciate the 1000 for half year?residual life before capitalisation is 10. after capitalisation,its residual life decreases to 5. if your answer is yes,we must depreciate it,then.. i dont understand why is it the question on june2009 (flightline),didn’t depreciate the 3 milion subsequent cost on the engines.and in addition to that sir..theres a repainting subsequent cost,why didn’t they capitalise it?can i capitalise it by justiying that the repainting generate economic benefits.for example,if an exterior structure is damaged,it wont attract customers thus wont generate economic benefits,,
Repainting first – it’s improbable that the exterior appearance of a ship or plane is going to deter future passengers! I have to admit that the last time I flew, I did not inspect the plane for the quality of its paintwork.
More important to me would be the quality of its engines and flight crew! And I further admit that I inspected neither the engines nor the flight crew.
Now, subsequent capitalisation. It depends upon the company policy. For example a policy of “full year in the year of acquisition, none in the year of sale” is substantially different from “reducing balance, time apportioned in the years of acquisition and disposal”
I don’t have the question to hand, but the examiner will invariably tell you the depreciation policy of the company. In fact, I can’t see how you could do the question if he DIDN’T tell you
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