Accountancy Forum

Full Version: Fixed Asset
You're currently viewing a stripped down version of our content. View the full version with proper formatting.
What is the accounting treatment for the following
an asset that is fully depreciated,but still working and we going to purchasing a part will increse Efficiency will we capitalise this amount of additinal part ? if yes what is the lifetime for this ?
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Information Consultant</i>
<br />What is the accounting treatment for the following
an asset that is fully depreciated,but still working and we going to purchasing a part will increse Efficiency will we capitalise this amount of additinal part ? if yes what is the lifetime for this ?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Assalam u Alaikum..

Dear..

If your asset is fully depreciated, but is still in working condition means that your estimate for its useful life was incorrect. You simply have to revise the estimate. Just evaluate the new useful life of the asset and start depreciating it in the normal way! no complex issue here.
Now, when you add some parts which are likely to increase the efficiency of the asset, it will surely get capitalized and its useful life will be merged in the useful life of the asset. Your estimate of useful life is likely to be changed after this new installation. but what would be the useful life is a case specific matter. you have to consider many factors such as the intended use of the asset by management, change in technology or methods etc etc...


Regards

Nabeel Munawar
Thanks Nabeel
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Information Consultant</i>
<br />Thanks Nabeel
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Most welcome dear )
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Information Consultant</i>
<br />Thanks Nabeel
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Agreed with Nabeel.
Dear Nabeel

What should we have to do in respect of change the method of depreciation as per IAS # 08 for more reliable and comparable financial reporting.
Assume that the management is planning to change the depreciation method from straight line to reducing balance. As per changes in policy; how much life of that asset should be taken for adjustment as the asset is fully depreciated.

Regards

UMAR.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by umar_khi08@yahoo.com</i>
<br /><blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Information Consultant</i>
<br />Thanks Nabeel
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Agreed with Nabeel.
Dear Nabeel

What should we have to do in respect of change the method of depreciation as per IAS # 08 for more reliable and comparable financial reporting.
Assume that the management is planning to change the depreciation method from straight line to reducing balance. As per changes in policy; how much life of that asset should be taken for adjustment as the asset is fully depreciated.

Regards

UMAR.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Assalam u Alaikum..

Dear Umar,

I would like to quote para 61 of IAS 16 dealing with your query

The depreciation method applied to an asset shall be reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method shall be changed to reflect the changed pattern. Such a change shall
be accounted for as a change in an accounting estimate in accordance with IAS 8.

So as stated, it would be a change in accounting estimate "not in accounting policy" to be applied prospectively )

As far as the life is concern, useful life is an other estimate. Management can make its best estimate by consulting an expert and shall revalue the asset to start depreciation it again over the new useful life. Now wt life should be taken is not a matter an accountant can handle, its an area of special expertise. Accountant can only put the value in accounting records as per the rules but the value shall be determined by the management by consulting some expert.


Regards

Nabeel Munawar
----edited-----
Reference URL's