06-27-2007, 11:31 PM
According to IAS 16 Depreciation is the allocation of depreciable amount,and depreciable amount is Cost less Residual value.
In straight line method we depreciate the depreciable amount (cost less residual value) i.e if cost is 4000 and residual value is 2000 and depreciation rate is 10 % , we calculate depreciation as
(4000-2000)x 10%
So what we will do in Reducing balance method, in the books the residual value has not be deducted while calculating depreciation through reducing balance method and instead of depreciable amount, depreciation is taken on cost.
Our teacher who is a Chartered Accountant has said that in reducing balance method too, we will not take depreciation on cost and we will calculate depriciation on cost less residual value i.e on depreciable amount and in that way we will comply with the IAS 16 definition of depreciation. We showed him books but he said show me any line of any IAS that says "Depreciation should not be taken on depreciable amount but it can taken on cost".
Now tell me how will be depreciation charged according to IAS under reducing balance method, on depreciable amount or on cost, if on cost then why?
In straight line method we depreciate the depreciable amount (cost less residual value) i.e if cost is 4000 and residual value is 2000 and depreciation rate is 10 % , we calculate depreciation as
(4000-2000)x 10%
So what we will do in Reducing balance method, in the books the residual value has not be deducted while calculating depreciation through reducing balance method and instead of depreciable amount, depreciation is taken on cost.
Our teacher who is a Chartered Accountant has said that in reducing balance method too, we will not take depreciation on cost and we will calculate depriciation on cost less residual value i.e on depreciable amount and in that way we will comply with the IAS 16 definition of depreciation. We showed him books but he said show me any line of any IAS that says "Depreciation should not be taken on depreciable amount but it can taken on cost".
Now tell me how will be depreciation charged according to IAS under reducing balance method, on depreciable amount or on cost, if on cost then why?
