Depreciation of individual items of Plant

[hafan]

I've to compute depreciation of individual items of a Plant but the problem is that I have cost for the whole plant and not for the individual items.

Please guide what should I do in this scenario. If I depreciate the whole plant and not the individual item then what should be done in case of disposal of any individual item.

[Moamar Qazafi]

calculate the depreciation of the whole plant. then distribute that depreciation among individual items according to there respective value.

[danishayub_76]

I think you should calculate the depreciation on the whole item (PPE). and in case of disposal follow the Para 70 of IAS 16.

regards,

[[email protected]]

Salaam

My dear friend as in my opinion there is a no need to calculate the separate depreciation on plant until n unless if there is a indication of different method used on different parts.

However IAS 16 doest not insist to calculate separate depreciation. It is only for facilitate the method.

You must charged depreciation on whole plant instead of separate parts.

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 danishayub_76</i>
<br />I think you should calculate the depreciation on the whole item (PPE). and in case of disposal follow the Para 70 of IAS 16.

regards,
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[danishayub_76]

Dear.

I also suggested the same treatment.

regards,

[Moamar Qazafi]

)

[kamranACA]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by hafan</i>
<br />I've to compute depreciation of individual items of a Plant but the problem is that I have cost for the whole plant and not for the individual items.

Please guide what should I do in this scenario. If I depreciate the whole plant and not the individual item then what should be done in case of disposal of any individual item.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">



The issue raised by you regarding disposal of parts of a plant that does not have separate costs and depreciation for individual parts, is of prime importance. This problem can be faced frequently at larger plants e.g. thermal power plants of IPPs and sugar plants etc.

Usually such plants make up a whole by uniting so many separate distinct parts and items which in itself are separately recognizable assets and are not simply the "spares". In such cases, for a proper record keeping, it is imperative that the fixed assets register should be prepared by recording each of the prominant components of the plant separately.

The useful lives of such components of the entire plant may or may not be same; so depreciation rates can either be same or different. But this is not the core issue. The core issue is to have the record of costs and accumulated depreciation separately for all such components / parts / portions of the plant, so that at the time of disposal proper accounting treatment can be made by retiring the deleted component and adding the new one as a capital expenditure.

There are two methodologies to achieve the target of separating the costs and depreciation of each component

1. Obtain current market rates/values of each of the component as well as the entire plant. Normally plant's market value in lump sum is not available in such cases, therefore, you can find plant's market value by summing up the individual market values of all its components. Then you can divide/allocate the costs and accumulated depreciation to each component in the ratio which its current market value bear to the total market value of the plant.

2. If the above is not possible due to information access barrier, prepare a list of all components that make out the plant as a whole, get the plant revalued from independent valuer on a cut-off date and ask the valuers to give you the re-valued figures of each component separately. Book the plant on the basis of revaluation in your balance sheet by crediting the Revaluation Surplus. Since after re-valuation, the charging of depreciation starts afresh, your purpose will be achieved. If you don't want to account for the results of the revaluation, you can use the results of revaluation (of each component that makes up the plant as a whole) to allocate the "original cost" and "accumulated depreciation" in the same manner as has been explained in "1" above.

Once you have reached at a point where your todate cost and accumulated depreciation have been allocated to each component, you can change the depreciation rates, as you deem fit, for future as a change in accounting estimate prescribed in IAS-8. Pls note, depreciation is an accounting estimate, so changes in its rate should be accounted for prospectively.

Although the exercise mentioned above looks simple but it is cumbersome. If you are a large entity, it may be advisable for you to hire the services of some accounting and technical experts for doing this job.

I hope you will find the inputs relevant to what you desired to inquire.

Best regards