Depreciation of a Fixed or Capital Asset

Depreciation is allocated to an asset systematically over its useful life. If a change in depreciation method is wanted, refer to IAS 8, Accounting policies, changes in accounting estimates and errors.

 

So long as an assets residual value does not exceed its fair value, then the asset is depreciated. (And the asset is put to use and not sitting idle for an extended period of time or held for sale - IFRS 5)

 

Asset Cost - Residual Amount = Depreciable Amount

 

The useful life an asset considers the following:

  •     expected useage
  • expected physical wear and tear
  • technical or mechanical obsolescence
  • changes in market value
  • legal  limits (eg. expiry dates of patent, leases, etc.,)

Land and buildings are accounted for separately, even if acquired together. Quaries and landfill sites are two exceptions, since they have an unlimited useful life. Revaluation of a piece of land does not necessitate a revalue in the building situated on the land.

 

Small buildings or parts on a piece of land which were dismantled, removed or restored, may have had an effect on the value of the land (small shed or fence not considered part of a building). These costs which were capitalized to the value of the land would be depreciated in an apropriate manner based on their useful life.

 

Depreciation Methods