Something I have come across too often now is the inability to show movements in property, plant and equipment (PPE) correctly.

Situation of what’s done in everyday accounting with PPE items is as follows:

1. Assets are disposed in accounting on a regular basis in their cost and accumulated depreciation;
2. The carrying value of disposed assets may or may not be zero, doesn’t matter;
3. Assets are also acquired and existing assets are depreciated. 

Now it comes the time to prepare the annual report and what’s usually done is that the acquisitions are shown alongside with the depreciation as movement and they’re both added to brought forward cost and accumulated depreciation balances. What’s not done is the deduction of disposed balances. Why, I don’t know.

Matter of fact is that you ought to deduct those disposed balances from the carried forward balances or else you’re showing your PPE in a bigger cost and accumulated depreciation than there really is existing.

I guess the reason why it’s not done often enough is because the assets disposed were in fact with zero carrying value and as such there’s no movement in carrying value.