As you know, property, plant and equipment (PPE) items are depreciated into expense over their useful life. In reality though the determined useful life is hardly exactly the time the asset is really going to be used. It’s rarely longer, but usually far more often shorter than the actual usage.

First and foremost, ensuring that the useful lives in fact represent the real usage as fairly as possible is something that should be done at all times. In practice, a company’s management should at least once a year review the useful lives to make sure the expense is spread out to the period the asset is being used.

Besides that however, what to do when the carrying value of an asset is already at zero? One suggestion we have, is just before year end make a list of all assets already at zero and about to get close to zero in next few months and review their useful lives – are they perhaps going to be kept longer than that? If they are, simply change the useful lives as if they had been changed from the beginning of the financial year. You can decrease the expense for the year and ensure the assets are depreciated over their actual usage once more.

The other question that rises when having assets with zero carrying value is of course if those assets are actually being used and do they even exist? There’s again a good reason to have annual PPE items count. We have in practice seen too many cases where there are assets in PPE ledger with zero carrying value which do not exist even.

So, take your assets with zero or close to zero carrying value and review the list – can perhaps the useful lives be changed? Are they in fact existing and if they are, are they in use?