In essence, what does this \u201cdepreciation of property, plant and equipment\u201d mean? IAS 16 defines depreciation as \u201csystematic allocation of the depreciable amount of an asset over its useful life\u201d. For easier understanding I think it\u2019s important to tear the definition into pieces \u2013 systematic allocation, depreciable amount and useful life.\u00a0<\/p>\n
When we talk about depreciation, the key component to define is how to allocate the depreciable amount over the asset\u2019s useful life, over a determined period. Depreciation is asked to reflect on the asset\u2019s future economic benefits so it can either be as straight-line (that is, you\u2019d account each month an equal amount to expenses), diminishing balance (that is, each period the charge decreases) or units of production method (that is, the charge is based on the expected output).<\/p>\n
Now, a depreciable amount that we\u2019re asked to depreciate into expenses, is not exactly the cost of the asset (initial acquisition cost), but cost less the asset\u2019s residual value.<\/p>\n
Since the term \u201cuseful life\u201d has been determined before, we are now left with finding the depreciation for the asset. As the definition above says, to find the charge you ought to take the depreciable amount, divide it by the method you\u2019ve decided to apply and spread the charge over the period you plan to use the asset for the benefit of the company.<\/p>\n","protected":false},"excerpt":{"rendered":"
In essence, what does this \u201cdepreciation of property, plant and equipment\u201d mean? IAS 16 defines depreciation as \u201csystematic allocation of the depreciable amount of an asset over its useful life\u201d. For easier understanding I think it\u2019s important to tear the definition into pieces \u2013 systematic allocation, depreciable amount and useful life.\u00a0<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[55],"tags":[],"class_list":["post-5060","post","type-post","status-publish","format-standard","hentry","category-1-5-3-subsequent-measurement"],"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/5060","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=5060"}],"version-history":[{"count":1,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/5060\/revisions"}],"predecessor-version":[{"id":5061,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/5060\/revisions\/5061"}],"wp:attachment":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=5060"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=5060"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=5060"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}