My query is in relation to depreciating an asset that remains idle for a considerable period of time. Let's say, we bought an AC for office use, and when it was purchased it was placed in my warehouse.
After a period of two years, the AC was sent to my Karachi office for use.
During this whole time period of two years, would it be correct if we leave the asset's value as it is, and do not take into account any wear and tear.
I've read somewhere, that we can depreciate such assets at a lower rate than normal. I've also read that we might as well, don't depreciate such assets altogether. What is the opinion of our esteemed members here on this topic?
Second question It is well known to us that depreciation rates for different assets are provided in the I.Tax Ordinance, however, are there any rates for different assets provided in some GAAPS, which could be used as a sort of guide for us.
It is also known that depreciation rates are primarily determined based on the estimated useful life of an asset. How can I estimate the useful life of an asset, say for instance, an AC? I mean despite being an estimate, there should be some slightly more well-defined way of determining such things.
Waiting for a cool response.
Thanks.
It usually is industry practice/norm which dictates what rates you use...but you must apply same rates to a category of assets..
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by noman</i>
<br />It usually is industry practice/norm which dictates what rates you use...but you must apply same rates to a category of assets..
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Thanks for your contribution.
Any thoughts on Idle assets?
Hi
Your question to depreciation for idle asset is referred.
As per IAS 16. Depreciation of an asset begins when the assets is available for use in the manner as intended by management. The depreciation charge ceases when the asset is derecognised. Hence, depreciation does not cease when the asset become idle or is retired from active use unless the asset is fully depreciated. However, only under the usage method (the depn method elected)the depreciation can be nil where there is no production. In your case, the Ac has to be depreciated even when not in use once it has been recognised as an asset.
The depreciation method used should reflect the pattern in which the asset's economic benefits are consumed by the entity .
Further, the depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits has changed, the depreciation method should be changed prospectively as a change in estimate under IAS 8.
Well I hope this answer your question.
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Nobin</i>
<br />Hi
Your question to depreciation for idle asset is referred.
As per IAS 16. Depreciation of an asset begins when the assets is available for use in the manner as intended by management. The depreciation charge ceases when the asset is derecognised. Hence, depreciation does not cease when the asset become idle or is retired from active use unless the asset is fully depreciated. However, only under the usage method (the depn method elected)the depreciation can be nil where there is no production. In your case, the Ac has to be depreciated even when not in use once it has been recognised as an asset.
The depreciation method used should reflect the pattern in which the asset's economic benefits are consumed by the entity .
Further, the depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits has changed, the depreciation method should be changed prospectively as a change in estimate under IAS 8.
Well I hope this answer your question.
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Therefore, assuming the economic benefit from the idle asset being minimal it could be depreciated at an estimated lower rate, than what would have applied to it under normal operating conditions?
Anyways, your answer is quite good and it does explain the issue quite well. Thank you for your thoughts.
Change in useful life of asset is change in accounting estimate as per IAS 8 . Change shall be applied prospectively.
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