There are different types of depreciation methods used. IAS 16 for an example mentions the following methods: Continue reading
In essence, what does this “depreciation of property, plant and equipment” mean? IAS 16 defines depreciation as “systematic allocation of the depreciable amount of an asset over its useful life”. For easier understanding I think it’s important to tear the definition into pieces – systematic allocation, depreciable amount and useful life. Continue reading
As you know, useful life on an asset is an estimate (unless you made a mistake saying that for an example a computer should be used say for 25 years, which obviously cannot be true). So it’s an estimate based on the information available at the time you are making it.
Subject to changing condition, changing business and changing technology and innovation, some assets tend to either be in use for a shorter or for a longer period than initially determined. As you no doubt can guess, in such a situation, the useful life, the period you show in your accounting you are going to be using the asset and spread the expenses over, should reflect the actual usage. That is the useful life should respectively either be short or longer than you’ve got it right now. Continue reading
You bought an asset and capitalized it. Did you give the thought that you might have actually replaced something any consideration? Why is it even important?
Matter of fact is that if you buy a new asset, it could very well be that you actually replaced something and this “something” should be written off from the balance sheet, disposed if you will. It could be up for being sold, but there should be an action you take to get rid of the asset from your accounts. Continue reading
I know that you’ve probably heard a lot about it. The useful life of the asset is the period over which it’s depreciated into expenses and the period should always equal to the period the asset is actually going to be used. So in short the estimation should always equal to the actual usage. Continue reading
How would you determine the useful life for a completely new asset, type of something you’ve never had? Say that you’re experimenting, expanding you business or trying to do something new. Continue reading
Every now and then your assets may need service, maintenance and even some fixing. While it makes sense for the service and maintenance to be part of your running expenses, for some reason accountants consider fixing to be part of capitalized cost of the asset. Why? Continue reading