Our machines are fully depreciated, but we still use them! What shall we do?
Do you work in the production company? And did you find out that some of your production assets are still in operation but they were fully depreciated?
In this case, the original estimate of machinery’s useful life proved to be incorrect.
Here’s one of the questions I received:
“Dear Silvia, we are a manufacturing company. We use our existing machinery for a longer period than its useful life and therefore, our machinery is fully depreciated. What can we do to correct it?”
What’s wrong with that?
The problem is that as these machines are used beyond their useful life, they are fully depreciated and their carrying amount is zero.
But in this case, what depreciation expense can you recognize in the profit or loss?
None, of course – because the carrying amount of your property, plant and equipment cannot decrease below zero.
So in fact, you use the machines, but you can’t really recognize any depreciation expense, because there’s nothing left. You have fully depreciated these assets in the previous reporting periods.
And as a result, the matching principle does not work here. The expenses simply do not match the benefits gained from these machines.
The problem is in the machines’ useful lives
The standard IAS 16 Property, plant and equipment defines the useful life as either:
- The period over which an asset is expected to be available for use by an entity, or
- The number of production or similar units expected to be obtained from the asset by an entity.
It is not the potential or economic life of the asset. These two will often not be the same!
For example, normal economic life of a car is 4 years, but the company’s policy is to renew car park every 2 years. In this case, car’s useful life is just 2 years.
Or, the economic life of a machine is 6 years, but after 3 years, the company’s experts assess that the machine can be used for another 5 years. In this case, total useful life is 8 years.
Now this is extremely important: Standard IAS 16 requires entities to review assets’ useful lives at least at each financial year-end.
You would not believe how many entities simply forget it!
They just book the annual depreciation charge based on the rates determined for some group of assets and that’s it.
They do not revise the useful lives of their assets and as a result, they end up with using fully depreciated assets in the production process.
How to fix this situation?
Let me suggest 2 possible corrective actions for this situation.
Solution 1: Review useful lives at each financial year-end.
Useful life is an accounting estimate and if you find out that it is different from what you initially set, you need to book this change in line with the standard IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
It means that you simply set the new remaining useful life, take the carrying amount and recognize the depreciation charge based on the carrying amount and new remaining useful life.
No restatement of previous periods’ financial statements is permitted. IAS 8 requires recognizing change in accounting estimates prospectively (now and in the future).
Now you might say: OK Silvia, I got it, but what should I do when the carrying amount (net book value) of my assets is zero?
Well, it depends.
If you reviewed the useful lives in the past regularly and during the current reporting period you find out that you’d like to use the assets even longer, then there’s not much to do. Just leave these assets as they are and make sure you avoid this situation in the future.
However, if you really forgot to revise the useful lives in the previous reporting period, this failure to apply IAS 16 results in the accounting error.
If this error is material, then you should correct it retrospectively in line with IAS 8. It means restating the previous periods using the revised estimated useful lives. Huge amount of work!
Solution 2: Revalue your assets to their fair value.
Standard IAS 16 permits 2 models for subsequent measurement of your property, plant and equipment: cost model and revaluation model.
And it is true that if you still plan to use existing machines in the future, their fair value is for sure greater than zero.
Revaluing machines with nil book value would effectively mean that you are changing your accounting policy and here the standard IAS 8 gets the word again.
In line with IAS 8, you shall change the accounting policy only if:
- The change is required by an IFRS. This is definitely not the case.
- The change results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.
You (and your auditors) can argue that point 2 exactly reflects your situation. But does it really?
It definitely solves nil book value at the end of the current reporting period. Like a pill provides immediate relief from headaches.
But the accounting policy represents some rules and standards setting how you will report certain transactions in the financial statements – not only now, but also in the future.
It’s not like a pill providing immediate relief. It is like a remedy treating the route cause and making you healthy for a long time, so that you don’t need to take pills anymore. But what if you apply the wrong pill?
So, do you think that changing your accounting policy from cost model to revaluation model would make you provide better information about your machinery, not only now but also in the future?
Before you answer that question to yourself, please consider this:
- You need to apply the standard IFRS 13 Fair Value Measurement in order to determine the fair value of your machines. It’s very difficult and impracticable.
How can you set the market value of used production machines (mainly if they are so specific to your company)? - Revaluation model is used for buildings and land in 99.9% of cases, because it’s easy to set the market value of these assets regularly.
Is it the case for used production machines, with some specialized nature that only a few similar companies can use them? - You need to revalue your machinery with the sufficient regularity. Can you set the fair value let’s say annually?
- You need to revalue the entire class of assets, not on an individual basis. Can you really set the fair value of all machinery? How practical is it?
If after considering all these aspects you still want to switch from cost model to revaluation model, then IAS 8 makes it easy for you. You don’t need to apply the new policy retrospectively, just prospectively – so no restatement of previous periods.
What solution should we select?
It depends, really.
In my opinion, it’s much better to review estimated useful lives at each financial year-end and recognize the change in accounting estimate, rather than opt to change the accounting policy just for the purpose of curing immediate headaches.
From the long-term point of view, revaluation model is not really suitable for machines used in the production process, especially when they have a specialized nature and their main recovery lies in the production of other assets and not in the capital gains resulting from the movements of their market prices.
Yes, I understand that the potential correction of error resulting from failure to review useful lives in the past can be quite painful process, because you need to make lots of calculations. But you do it JUST ONCE.
Please watch the following video with the STEP BY STEP illustration of treating this problem:
Did this explanation help you? Or, do you have a different opinion?
I would really love to hear that! Please leave a comment right below this post. Thank you!
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Good article & excellent way to articulate. Keep it up.
Greate lecture. Like others…
Well done. well researched
Excellent explanation, it’s simple & focus
but do you offer any Diploma in IFRS Specially here in middle east countries like Saudi Arabia that will apply ifrs at 2017
many thanks
Hi, Alwaleed, thank you for the feedback 🙂 Well, I offer the online IFRS training that can be accessible from anywhere in the world. Many students passed their DipIFR with this course. Also, I offer CPD certified training “Basics of IFRS Reporting” through my partnering organization. It’s about 3 hours of video there are tests to pass, etc. If you are interested, just let me know 🙂
Good article and hope you will update us in future as well. Here is a practical problem in respect of revision in useful life in case #1 and evaluation of amounts in case # 2. In Pakistan, auditors normally required us Evaluation Report from a reputable company to revise the useful lives and/ or revaluation of assets amounts. Would you please advise us in the light of IAS the correct way in determination through evaluation report or merely management estimates enough. Thank you.
Hello Muhammad!
I don’t want to argue with your auditors (no way, I really honor auditors as I was one of them). But let me say this:
1) No IFRS requires using expert opinions (but some of them recommend it). If you are able to support management estimates with relevant past experience, etc, then it might be enough.
2) I don’t know anything about auditing standards in Pakistan. But if auditors need evaluation reports from experts, it is their audit evidence from the third parties. If you provide them with management estimates, it is their work to assess whether in their opinion, management estimates reflect the situation or not. When I was an auditor, we asked experts for their opinion, but we reflected it in our audit fee 🙂 Of course, the situation in Pakistan might be totally different.
Hope it helps!
S.
for audit purpose..auditors requires expert’s opinion regarding their expertise to value something..
Dear Sarfraz:
You are right normally in Pakistan most of the auditors require reports from reputable firms, however, this is not the case. Management estimates are enough. But the auditor has to verify these estimates by applying ISA 540.
Hi Silvia, thanks for this article and your regular IFRS update. I am interested in any of your courses in IFRS.I await your requirement for the course.
Thanks.
Hi Richmond! I really feel honored that you want me to help you learn IFRS! Currently, I provide 3 online courses:
1) IFRS In 1 Day – the basic course for beginners in order to start learning IFRS quickly http://www.cpdbox.com/ifrs-in-1-day
2) IFRS Kit – the course to get in-depth IFRS knowledge, to make your conversion to IFRS smoothly and pass the exams – http://www.cpdbox.com/ifrs-kit
3) Basics of IFRS Reporting – 3-hours certified course with my partnering organization http://www.theifrsclub.com
You are very welcome to join and experience the different IFRS learning than anything else 😉 S.
Thank you Silvia. the article is simple and clear.
I will like to hace tour lectures
Hello SILVIA. M can you confirm you have a mail discussion with me today on my email?
Just to be sure I was talking to the right person
Hi, Zacchaeus, yes of course, you were talking to me via e-mail 🙂 I suppose I really am the right person 🙂 S.
Hi I,m interested in CPD courses, please give me further details
i am interested
Hi Silvia,
Thanks for sharing your valuable knowledge !!
I am an Indian CPA and your information really helps me when i am dealing with my clients.
I really appreciate your efforts to make it easier to understand the complex IFRS’s.
Thanks
Vishnu
Hi Vishnu, thank you for the feedback, I’m really happy that this website helps you! 🙂
Hi Silvia , Thank you so much for this valuable information I just have one question regarding this, its about using the revaluation model which is a change in accounting policy, but while I was reading IAS 8 I was confused
The following are not changes in accounting policies:
(a) the application of an accounting policy for transactions, other
events or conditions that differ in substance from those previously
occurring; and
(b) the application of a new accounting policy for transactions, other
events or conditions that did not occur previously or were
immaterial.
17 The initial application of a policy to revalue assets in accordance with
IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets is a
change in an accounting policy to be dealt with as a revaluation in
accordance with IAS 16 or IAS 38, rather than in accordance with this
Standard.
But the question is if we apply the revaluation model and treat it as a change in accounting policy does it require a restatement? if so how can we get last year fair value?
Hello, Hussam, thank you for this question.
With reference to initial application of a policy to revalue assets in accordance with IAS 16 it says that yes, switching to revaluation model from cost model IS change in accounting policy, but when you do it for the first time, you DO NOT restate previous years’ balances, but you apply it prospectively – to the future periods. So no restatement. I have added this clarification directly to article.
But, in deciding whether you switch from cost model to revaluation model, you need to assess whether it would provide better understanding of the financial position and performance – just as I wrote. Hope it clarifies the things 🙂
Many Thanks Silvia :)))
Hi Silvia, could you please mention the article number of IAS 8 or other standard which allows you to apply changes in accounting policy prospectively when you do it for the first time.
Thanks in advance.
Parviz
Oh please, I never said that IAS 8 asks to apply the change in accounting policy prospectively when you do it for the first time! Please read my comment carefully. It relies only to switching from cost model to revaluation model and this is stipulated in IAS 8, par. 17.
Good article and easy to understand.
What if the carrying value is NIL & how to find found the revised useful life?
Hi Akbar, if the carrying amount is nil and you still use the asset, then you need to evaluate or estimate HOW LONG you are going to use them in the future – that would be machines’ remaining estimated useful life. And if the carrying amount is nil, and you forgot to review useful life in the previous reporting periods, then you probably did not comply with IAS 16 – which is accounting error. So you need to go back to previous reporting periods and correct this error retrospectively (restate opening balances) – if the error is material. S.
Thank you Silvia for the wonderful subject about the fully depreciated assets still in use and I faced the same issue during my job in Industrial company whole the lives of assets were under estimated and no annual revisions for the useful life done. what did new estimation for the useful lives of these assets and the amount was material comparing with the activity volume and it can change the decisions taken pertaining to this activity, so we decided to amend the useful lives retro- proactively through restatement of the previous periods to reflect reliable and relevance information as the revaluation model was not suitable because of the specialized nature of the machinery and difficult to have Fv for it.
Hi Hemdan! I see you took exactly the same solution as I propose in point 1 🙂 I guess it was a bit painful to recalculate it and restate opening balances. By the way, did your auditors raised some points about wrong useful lives during previous reporting periods? They often forget, too 🙂
ya my Auditors mentioned this in the notes
Thx 4 ur efforts 2 make complex IFRS much more easier…
Thanks a lot 🙂
Your simplicity of presentation is motivating for learning. Please keep it up for your teeming followers
Hi Wale! This is really great to read from someone who actually studies my courses like IFRS Kit. I’m very happy that you like it! Best regards, S.
GooD Job !!!
Nothing to say…
Simply the good explanation!!!
Thank you! Glad you enjoyed! S.
Hi Silvia,
Thank you so much your explanation about fully depreciated assets and they are still in use.
Here:
1. This principle applies for all class of Assets (PPE) not only machines in Production Company but also PPE in Service industry …. Right?.. But it is applicable for all assets in same class.
2. Does it apply the above principles for intangibles assets (IA38) —E x., Software?
3. As you rightly said, If we reviewed the useful lives in the past regularly and during the current reporting period you find out that you’d like to use the assets even longer, then there’s not much to do.
Here my concern is how we can consider the benefits from the extended life of the assets in the above scenario.
Do you have published any articles videos on IAS 8 Accounting Policies, Changes in Accounting Estimates and errors. Can you please share those?
Hi Laxmana,
1. Yes – all assets that you account for under IAS 16. And yes, you need to review estimated useful lives of all assets.
2. Yes, I have already answered that.
3. It’s the management’s job to estimate the remaining useful life of your assets. How long are machines going to operate in the future? The benefit is that the machine operates and produces 🙂
4. No, but I guess I need to write an article with a video on this topic 🙂
S.
In Colombia, my country, we have began, this year with the transiction for the aplication of IFRS, is our newest insertion in global economic world.
I read your articles and saw your videos and explanations, It great way to undestand difficult subjects, thanks for everything.
God bless you.
best regards.
Thank you, Ferney, I’m really happy to help 🙂
well explained.
the facts have been discussed is really important.keep doing that
Silvia, after I stumbled upon one of your videos on YouTube, I subscribed to your IFRS Kit and since then have not felt the need to look elsewhere for additional guidance.
Your obvious grasp of the subject and ability to explain it in clear, lucid terms is a rare gift which you have successfully harnessed in your videos.
Your simplistic graphics and the generally pleasant aesthetics of your slides serve to further demystify what could otherwise be a very complex and unfriendly subject.
I head an audit practice in Nigeria and also run financial training courses. I’m very impressed with you efforts.
Dear Shmuel!
Thank you SO MUCH for your kind words!
I really feel great that I helped you and you found a lot of value in my courses. That’s why I do it – the purpose of my work is to HELP people, whether they buy from me or not.
Thank you again and wish you all the best! 🙂
S.
Excellent explanation.
Simple to understand
Many thanks
Dear Silvia, you are marvelous in doing justice to some knotty areas in the IFRS. Keep it up. I don’t regret subscribing to your IFRS kit.
Abundant blessings
Hi Yemi, big thank you for your kind words! And yes, I will do my best to continue supporting you in IFRS! xoxo, S.
THANK YOU VERY MUCH AM A RWANDAN CPA,THROUGH MY PROFESSIONAL QUALIFICATION YOU REALLY HELPED ME A LOT WITHY YOUR SUMMARIES . NOW YOU MAKE IT CLEAR ,MY CAREER DEPENDS MUCH ON YOUR IDEAS .
Hi Eric,
I am really thrilled to read this! Thank you so much for your feedback and wish you all the best! 🙂 S.
Great Material and you also explain it in such a way that makes ifrs a fun topic, keep it up!
Regards from Mexico.
Hi
wonderful job
Hi, i really enjoy your online articles. Am about to finish my professional accountant . Please, l want to have Diploma in IFRS, how do l start ?
Hi, you should firstly decide what kind of Diploma would you like to have… DipIFR from ACCA? Anything else? All your further steps then depend on the selection of your desired degree. S.
thank you very much , i believe that correct solution is must be reevaluation the asset and the new depreciation expense = the new value divided on the new life
Nice article, good work.
But one thing I dont grab very well.
Is it that a company will choose one model of accounting for the depreciation I.e cost or revaluation model.
But can they change from one model to another.
Iam from India.I have plant to join DIPIFRS from ACCA and plant to take exam on Dec 2014.
Iam sure will buy the IFRS KIT shortly.
Once again thanks great articles.
your article are really awesome.It is really helpful.I am working in prime global pakistan as auditor. The bad is I can’t see you lectures as your lectures are based on youtube and youtube is banned in pakistan. Could you find a solution to this problem? I am waiting, Thanks again for your free IFRS articles and update.
Hi Salman, thank you for your nice comment. I’m really sorry that it does not work. Which video servers do work? Vimeo? Please advice and I’ll think about uploading there. S.
Hi silvia, thanks for your quick reply, you are too nice 🙂
Silvia, Vimeo works here but I suggest you should upload videos at dailymotion. I hopeful that you will find a solution. I consider you as a teacher because I have learnt alot from your articles. Thank you once again.
Hi Salman, thank you for the advice! I’ll try to do it on vimeo, as it’s quite robust also in our environment. Take care! 🙂
Hello Silvia, I have a question for you, I work in health services and have building worth $ 500 million, the problem we are facing is that we have a building which is fully depreciated with a carrying amount of $ 0. Recently we carried out some capital works on it, but as the building is fully depreciated, we are not sure, what needs to be done. Shall we apply IAS 8 as mentioned in your video, but it deals with production assets rather than building in particular. Appreciate all your help.
Hi Chetan,
the video deals with the production assets, but it’s totally applicable to buildings, too. If for that particular building it would be appropriate to switch to revaluation model and hold it at revalued amount (fair value less subsequent depreciation), then I would do it. But if you utilize the building for your own use (like admin, or is it a hospital building?), then maybe it’s appropriate to restate previous years’ amounts if you have not revised useful life before (I guess not).
But, if useful life of that building was extended due to capital works you performed, then it’s appropriate to set remaining useful life and depreciate cost of these capital works over the remaining useful life. As you can see, it requires some of your judgment, too 🙂 S.
Thank You Silvia, Yes it is a hospital building, which is now fully depreciated , sorry for my ignorance, but when you suggest its appropriate to restate previous years amonunts, Do you mean restateing the useful life?. I will say I have been very lucky to find your website, as so far no one had been able to answer my above question?
Chetan, I would need to look more closely to this specific case. But here’s the thing: did hospital’s useful life increase due to new capital investment made in 2013? Or was it clear before 2013 that you would continue using that building?
If the building has been fully depreciated for years, then yes, you should go back some years and re-calculate depreciation charges using extended useful life + treat this change as correction of error in line with IAS 8. Why? Because you failed to apply IAS 16 properly in the past: IAS 16 requires assessing the useful lives annually and apparently you did not do it. Please watch the video included in this article as you can apply it to any assets.
Then also, after you made some capital investments in 2013, maybe the useful life increased even more. But this time, I would treat this change as a change in accounting estimate due to increased or improved conditions of the building.
S.
hi
thank you very much about all your videos
please I have one question about p.p.e
please could you tell me how major components and spare parts should be recognized as p.p.e as this throw put it in inventory and when it used in production process put in p.p.e or
we put it directly in p.p.e
regards
Hi Mohammed, you don’t put all the spare parts to your inventory. Only the spare parts related to items that are in your PPE, so for example let’s say you have some machine in PPE and 1 reserve engine to that machine. You currently don’t use that engine, but it’s a spare part to the machine. Therefore, you treat this engine as a PPE rather than inventory.
Hope it makes sense. Have a nice day!
S.
hi Silvia
thank you again Silvia and I want say to you
that you help me to understand ifrs as all not this issue only
but let me understand this I put it as separate PPE or I capitalize it to the machine and if I capitalize it to the what about deprecation is this should raise useful life of the machine or salvage value
regards
Well, there’s no single solution for all cases. You need to assess everything carefully. For example: can you use that engine for other machines, too? Or for that specific machine? If it’s for that specific machine, then you can capitalize it to the cost of machine. If it’s general spare part, then capitalize it separately. Accordingly with the useful life: if you can use engine for that machine, then depreciate it together with the machine. If you can and plan to use it with different machines, then you need to estimate its useful life carefully and as soon as you use the spare part, you add it to the carrying amount of machine and depreciate over remaining useful life.
So as you can see, you need to assess all cases separately. S.
This is a good lecture piece.Please how can i download your lecture that you said they were available on excel.I cannot find them.Please help.I have been trying to get the notes on this lecture on fully depreciated assets but still in use.
Hello, I sent them to your e-mail. Did you get them? S.
Hi slivia thanks alot dear for this great job I would like to know your advice regard what material would help me more regard learning IFRS diploma also I need to know what other courses I can reach in your website ? Also if you can send me the excel files regard IFRS training as well thanks alot
Hi Silvia
Thank you very much about all your videos,
how can I download Excel file? in lecture you said they were available on Excel., I can”t find them.
Hi Silvia
I join a company in which they have some Asset under Construction (AUC) which in actual already in used since 2012 but not yet depreciated (as its never moved to Fixed Asset).
Shall I restatement the company Financial Statement of 2012 & 2013 to capture the depreciation exps of these AUC Or I can just start depreciate the Asset in 2014 (prospective approach)?
Appreciate your advise on this. Thanks 🙂
Hi Dian,
well, if the asset has already been in use, but not yet depreciated – in my opinion, it is the accounting error rather than the change in accounting estimate. If this error is material, then you need to correct it retrospectively (restating previous years) in line with IAS 8. S.
Hi Silvia,
Thank you for giving us all the insightful information on IFRS.
Regarding depreciation on property, I have a question which I hope you can kindly advise.
I understand that depreciable amount of an asset is arrived at after deduction of residual value. For most assets, the residual value is insignifanct and assumed to be nil. However, where leasehold building is held, how could we estimate the residual value of the leasehold building? It seems there is no point to say that the leasehold building’s residual value is nil after the end of its useful life, say 50 years?
Could you kindly help?
Hello Silvia, I really do appreciate the extent to which you go in simplifying many IFRS issues.Specifically, I have really enjoined this depreciation proble. However, I would appreciate if you put me through on few question below:
1.Could you explain why PPE in most cases have nil residual value especially leasehold buildings?
2. What do you mean when you say that the machine recovers from its production of other assets and not the capital gain from it change in market price? Thanks
Hi Tochi,
I hope my response is not too late for you!
1) Well, I can’t say it’s a general statement. Most of machines have nil residual value just because they are used until the end of their useful life and after then they have just scrap value. But not the buildings, definitely – in reality, buildings do have some residual value.
2) It points to what you plan to do with your machine. Recovery from the production of other assets means that you are going to use the asset in the production process and not sell it to gain some profit from sale. Recovery from capital gain from its change in market prices means that you hold the asset and you want to sell it in the future for higher price – so you’re not using this asset in a production process primarily.
Hope it’s clearer
Silvia
Hi!
It’s an illustrative article, and easy and all good in theory but you need to try to get this working correctly in a company with hundreds of thousands of assets and you’ll find problems..
Sure. But the aim of this article is not to solve problems in a company with hundreds of thousands of assets – this is the task of their internal system / staff.
My aim was to outline the correct accounting treatment and to give some hints about where to go.
I’m so glad you understand.
S.
Hi Sylvia. Thanks for this write up. However, I have an observation. IAS 8 requires changes in Accounting policy to be applied retrospectively.The change from Cost model to revaluation model under the second solution is a change in accounting policy. Hence, it should be applied retrospectively. Could you shed more light on the reason why it should be applied prospectively.
Hi Idris, yes you are right, it is a change in accounting policy.
But, paragraph 17 of IAS 8 says explicitly that when you apply revaluation policy for the first time (i.e. you switch from cost model to revaluation model), then it is treated as a revaluation, not as a change in accounting policy – that is prospectively.
This particular case is an exception from IAS 8 rules. S.
Hi Silvia, i follow you from two years ago, and every time i found more useful your website. I have this question for you: In year 2012 an entity applied IFRS for the first time, and chose the deemed cost as its cost based on an appraisal for its land. Later on 2017, this entity decides change from cost to fair value, the effects by revaluation must be recorded prospective? despite the previous decision to take the deemed cost. Please your help with this. And God bless you. Regards from Ecuador
Hi Armand,
in fact, prospective. The standard IAS 8 specifically says that when you switch from cost model to revaluation, then you should treat it as revaluation, not in line with IAS 8 (i.e. not retrospectively). S.
Hi Silvia, This is the most precise and worthful article on this topic.keep the good work on.
Hi Silvia
Could you please help me out in this situation?
An entity holds spare parts related to its machinery as inventory though the spares form integral part of PPE. The inventory is being carried at actual cost and has not been written down. The machinery has been fully depreciated by now though it is in use. The effect to this will be given by re-estimating the useful life and as the impact is material, the same will be restated in the opening and comparative financial statements.
Assuming the revised estimated life is going to increase by 3 more years, how should the inventory be dealth with??
Dear Silvia,
thank you very much for your help and highly appreciate your effort. I watched your youtube video regarding the above issue and I have a query. In your excel illustration, you wrote the journal entry for 20Z5;
(the depreciation has not been booked previously)
Debit: F/P Accumulated Depreciation 77,778
Credit: P/L Depreciation Charge 77,778
I am not sure why you have debited the accumulated depreciation and credited depreciation charge since the depreciation has not been posted previously.
I think the journal should be;
Debit: P/L Depreciation charge 77,778
Credit: Accumulated depreciation 77,778
your response will be highly appreciated
Of course, Azim, you are right!!! 🙂
See, I can make a mistake, too. I say that in the video – that in 20Z5, you should book full charge in P/L, just when I made the excel, I simply copied the above entry and it should have been reverse.
The funny thing is that no one has noted until now 🙂 I will make a correction on YouTube by annotation. Thank you again!
S.
Thanks a lot for your reply…..it was me who commented on your youtube video as i was having trouble commenting here. Now it seems that the comment was posted here also. Please keep up the good work
Dear Azim,
thank you. It’s true that you don’t see your comments here immediately. The reason is that I need to approve them personally. I have this policy to avoid lots of spam going on. However, I approve every single comment coming from the real person who is not marketing or selling anything.
Have a nice day and thanks a lot for the correction
S.
Dear Silvia
I have one concern as below , pls give your opinion on this.
As you said if there are fully depreciated assets we have to re-state the previous records,
However as per the records available if it is not possible to know when was it fully depreciated and no purchase date in the system, how we should adjust those retrospectively,
Say as eg :
We have only Assets cost $1000 and in Accumulated depreciation $1000. and we are now in end of the year 31st December 2014.Depreciation rate was 20%.
How should we adjust at the year end? we can not keep as it is since it is fully depreciated. however we do not know the purchase date or fully depreciated date as per information.
Seeking your advise on the above.
ear Silvia
I have one concern as below , pls give your opinion on this.
As you said if there are fully depreciated assets we have to re-state the previous records,
However as per the records available if it is not possible to know when was it fully depreciated and no purchase date in the system, how we should adjust those retrospectively,
Say as eg :
We have only Assets cost $1000 and in Accumulated depreciation $1000. and we are now in end of the year 31st December 2014.Depreciation rate was 20%.
How should we adjust at the year end? we can not keep as it is since it is fully depreciated. however we do not know the purchase date or fully depreciated date as per information.
Seeking your advise on the above.
Dear Silvia
I am not sure that I have chosen a right article to write question…But I have come across of an issue which looks simple at the first glance…but. For example Company purchased a refrigerator and keeps it at warehouse till the apartment is complete. While IAS 16 says that depreciation of an asset begins when it is available for use, which is defined further when the asset is in the location and condition necessary for operating in the manner intended by management. Thus in this case, since the refrigerator is in warehouse it cannot be depreciated, as it is not in location in which it was supposed to be to operate. Therefore depreciation starts when it is moved to the apartment. Do you agree with this logic? What is your opinion in this relation?
Dear Katrin,
totally and technically speaking – OK, but for me, it’s really just gaming with the conditions as the refrigerator is in your warehouse and thus available for use.
However, let me offer different solution: IAS 16 states that you can depreciate the asset using the pattern reflecting its consumption. So in fact, right now the asset is not used and therefore you can charge zero depreciation until you start using the asset. IAS 16 does not insist on straight-line basis. How does that sound? 🙂
Of course, you should prepare your depreciation plan accordingly in advance. S.
Thank you, Silvia… yes, you are right we can further refer to this clause. ))
I love the way you have explained this.
Superb job, I am an ACCA finalist, recently found you on internet, I hope i have a lot to learn from you.
Hi Silvia
Thank you so much for the article, it has been very helpful. keep up the good work
Thank you for this clear and simple explanation which is easy to understand. This also facilitated our understanding on how to restate affected accounts.
I have pipelines that are fully depreciated. These pipelines are supposed to be replaced but due to funding constraints have not been replaced. Engineers hired to revalue the pipelines have estimated the “economic life” for the pipelines to have additional 5 years. In their revaluation they have used current material costs to estimate the depreciated replacement values. We are arguing that the calculated life is economic life and not useful life. Do you think we need to revalue? If our contention is that the useful life is now zero, can we be compelled to revalue just because current construction costs exceed those in the books? The directors have already approved replacement and the assts are in our 5 year development plan, but not replaced 2015 due to funding limitations.
EXCELLENT JOB SILVIA, PLEASE KEEP IT UP.
Dear Silvia
Thank for simplifying several accounting issues. I find it very helpful. However, I have a problem with Office furniture. I have furniture that have a zero net book value for over 15 years but these are still being used in the business and will continue to be used for about another ten year. Since a zero value is unacceptable according to IFRS then please advise.
Hi Collene,
is it material or not? If it’s not material, then I would probably leave it as it is. If it’s material, then you should really follow the methodology in the attached video. S.
Hi Silvia
IAS 16 states that if you apply revaluation model, it should be applied to all assets pertaining to that class of assets. However, when it comes to offset a revaluation gains against a revaluation loss or vice versa, IAS 16 states that it should be against the same asset. Why is it not against any other asset of the same class?
Hi Silvia,
I have am assets in which we usually do overhaul in these assets and is it possible for us to extend the useful life of the assets and adjust the depreciation charge after the overhaul.
Hi,
Pls what depreciation percentage is applied on Equipment when depreciation rate is not given and the useful years of the equipment is not also given?
Joseph,
depreciation rates and methods are accounting estimates, therefore you need to estimate it and then revise your estimates at the end of each reporting period. S.
Hi Silviya,your articles are awsme.you are my ifrs sheo.learning from your site.
can i get a invoice for ifrs kit.i am reccomending in my bank to purchase this kit.so i need this.I am from Nepal working in banking sector.Please let me know the payment mode also.
regrds
sandhya
Hi Sandhya, thank you, that’s awesome for me!!!
Yes of course, if you are buying as a company, you can get the invoice from us. Many banks have already invested in the IFRS Kit. Please send me the e-mail via this site and let me know your billing details and number of users. All the best, S.
Hi Silvia,
Your articles are of big help for me.
Just a question and I hope you could help me on this.
I am working with a start-up Company, we bought assets that are either low value or fully depreciated from affiliate company before the start of operation. We are treated as separate entity from our affiliate, what is the accounting treatment for this?
Thanks!
hi. what if the equipment was already fully depreciated or was sold but the equipment was still recorded as an asset.
Hmmm, that’s a BIG trouble 🙂
1) If it’s fully depreciated => read the article above;
2) If it’s sold => there’s an accounting error if an asset has not been disposed of. You need to correct it. S.
Silvia, you are a great lecturer. Will definitely join your course. Any discount available?
Hi Pil, thanks for your feedback! 🙂 Please contact me via contact form. 🙂
hiSilvia, how do you recognise the proceeds from a sale of fully depreciated assets, what are the accounting steps
My company purchases assets abroad it means there is exchange rate profit or loss everything we purchase the plant and machinery. Kindly advise the capitalization rate to use, whether BOL (Bill of Lading Rate) or transaction date (date of Purchase Order Rate). And in our company we accumulate all Profit and Losses that arises to the Asset account. And then on capitalization any difference between Bill of lading amount and Actual amount realized is allocated to Other Comprehensive Income (Forex Profit/Loss) account.
Kindly assist to ensure that we are following the correct IFRS procedure. Thanks
Hi Silvia, I’m a US CPA and I work for the State Tax Agency as an Corporate Income Tax Auditor. I like your IFRS explanations. I always read about the convergence projects between US GAAP and IFRS.
US tax laws are complex! and so US GAAP. In the CPA exams these days I guess they introduced IFRS as well. I would like to brush up IFRS.
I thought of buying your online course, but thought it might be a scam to make money. Kindly assure us that it is not.
Imtiaz
Dear Imtiaz,
please do not insult me and my work. Do you really think that I would publish so much work for free, including videos, articles and personal responses to many comments – just to earn money on some scam? I can assure you that my courses are not scam and helped a lot of people to pass their exams. S.
Dear Silvia
I am not cleared with one issue that if we switch from cost model to revaluation model for the asset having zero carrying value, then how should we depreciate such accretion. Should we again re-estimate the useful life of the asset for amortization or will there not be any amortization? In case we re-estimate the useful life then shall it be treated accounting error though the asset is revalued? Also, such depreciation shall be part of comprehensive income or other comprehensive income?
Thanks
Sincerely.
Arsh,
as I wrote above, this is not the best solution. But if you insist on it – then you should revalue to its fair value at the date of change of the accounting policy and then depreciate the fair value over the remaining useful life. But in practice, any auditor will try to remove this adjustment and instead, correct any errors in the previous periods (e.g. not revising useful lives). S.
Hi Silvia,
My issue is the companys Fixed Asset Register has lots of old fully depreciated assets, some still in use, most not (and it is not possible to identify which are still being used and which are not). Is it better to just dispose all fully depreciated assets?
Thank you
Hi Anthony,
if the assets just sit in your register and you don’t use them, then yes, you better dispose them off. However, if you still use them, then it would be more appropriate to take the solution described above. Always take materiality into account – if carrying amount of your fixed assets after correction is not material to your financial statements, then I would not make a correction. S.
Dear Anthony,
it depends on careful analysis and your materiality level (i.e. significance for your financial statements). So for example, you estimate that the total fair value of these old assets is 1 000 and the level of significance is 10 000, then don’t bother with it. But if your rough estimate comes closer to the materiality, then disposing these assets off the register might not be a great idea. S.
Amazingly explained. I have Never come across any site with such a beautiful explanation of such a complex accounting issue.
thank you for a detail explanation. I learn a lot from you.
Dear Silvia,
I have a question degrading PPE..
There is a fully depreciated asset and it is still using for the production. And there is a residual value of this asset. Can you give me the current accounting treatment for this asset. And what can I do for the residual amount of the asset?
Dear Piumali,
I think this article is all about this issue. If it’s material for your accounts, you need to correct the error in the previous reporting periods. It means changing the useful life of this asset, recalculating its depreciation charges (take residual value into account), setting the correct carrying amount, comparing it to what you have in your books and recognizing a difference in the previous periods directly in equity as correction of error. S.
Dear Silvia
We have unique fixed assets of significant amount. We bought these 10 years back and have been charging depreciation @10% reducing balance method. Now we found out that in the purchase document it says that the life of that asset is 20 years. We want to use straightline depreciation now on. What do we do? Retrospective or prospective?
Dear Harun,
the question is whether you revised the useful life of these assets in the past (as you should have done so in line with IAS 16) or not. If you did not do so, then it means you did not apply IAS 16 properly and you have an error in your financial statements – in this case, if it’s material, you should correct it retrospectively.
But if you revised useful life each year and only this year you decided to use the assets for 10 more years, then it’s a change in accounting estimate and it’s accounted for prospectively.
It requires your judgement. S.
i like you good explanations S
Hi Silvia – we have two same machines. One using in regular production process, however other one is used as spare (in case of failure, to be used), however as of now we have not used the spare machine, not rented out. Can we consider that as PPE and apply depreciation on the same.
Dear John,
if the spare machine is absolutely necessary to make sure that your operations don’t stop when the first machine fails, then yes, you can do as you proposed. S.
Hi Slivia,
You are so amazing. Your aritcal is really helpful and easy understand. Thank you very much.
Meanwhile, I have one silly question which is I find that in the previous article. You said that if you change your accounting policy voluntarily, then you should apply it “retrospectively”.
However, why you said that if you still switch from cost model to revaluation model, then IAS 8 makes it easy for you. You don’t need to apply the new policy retrospectively, just “prospectively” – so no restatement of previous periods in above solution two. This is the one of exception case? How we can apply it? Thanks.
Hi Maggie,
it’s not a silly question. Yes, this is the exception, because IAS 8 says that this particular case should NOT be accounted for as a change in accounting policy (although it is).
When you switch from the cost to revaluation, you just revalue at the date of change and go ahead. No restatements in previous years. S.
O i see Thank you very much. It’s really helpful. Thanks again for your knowledge sharing : )
Hi Silvia,
thank you for making this article it was very helpful, i have watched the lecture but I cannot find the excel sheet for the illustrative that was shown in this video, how can I download it please?
Hi Silvia,
Situation: We have different kind of Assets, like: Fixture and furniture, Plant & Machinery, Office Equipment etc and their cost respectively $10,000, $8,000 and $5,000 and Accumulated Depreciation respectively $6,000, $5,000 and $3,000 (Addition and disposal was made during the period) we are now in end of the year 30th June 2017. Depreciation rate was 20% each.
Most important think is there are no information about Acquisition and Disposal that is why we have no acquisition date of those assets.
We want to revalue the assets but lake of information (Acquisition date) we unable to do this.
Please advise me how we revalue the assets in this particular situation.
Thanks in advance.
Jesun
Hi Sivia,
If some entity involves in a solar power planets how they should recognize the revenue. Since it will take some months to construct and fix the panels. But they complete their tasks stagewise. It should be treated under revenue or construction contract?
Hi Silvia,
I can’t see this video :
Please watch the following video with the STEP BY STEP illustration of treating this problem
Just reload this page and it will appear. Thanks!
Hi Silvia – great article, thank you!
A slight twist on the above (and apologies if this has already been answered, but I browsed through the questions and couldn’t find what I was looking for).
What happens if an organisation has a Fixed Asset Register where some of the assets are fully depreciated but cannot be identified by the FAR entry and hence no one knows if they’re still in service or not – would you just write them off, and is there some IFRS guidance on this treatment? Currently I’m seeing a Fixed Asset Register where the entries as such that the underlying asset or purchase order that prompted the entry cannot be identified, with the FAR full of old assets listed with descriptions like “Capital Purchase of IT Equipment”!!
Best wishes,
Steve
Steve, this is not a matter of IFRS, but of internal controls. The best thing would be to perform a fixed assets count and see what’s in operation – then track it to the FAR and clear the differences. S.
Hi Sylvia
I have a question,is the assets already depreciated even there is salvage value remaining?
Example the cost of an asset as of September 30 2017, is 100
Salvage value is 20
Acumulated Depreciacion is 80
the asset is fully depreciated in my opinion,
Thanks
Hi Sylvia,
IAS 16 gives us the discretion to chose between cost and revaluation model. But isn’t more to it than just a management choice?
What if carrying value are substantially different from the fair value? for fully depreciated assets I have read you article, very clear thanks.
How do we guide management in making the choice between the two methods? what I see is a compromise between relevance (more relevant if I revalue under-valued assets) and reliability (how accurate are these revaluations).
I am working on a case with first adoption which means that application will be fully retrospective and IAS 8 doesn’t really apply, right?
Thanks
Didier
Hi Didier,
yes, it is a management’s choice, but it should be justified with something. If management wishes to utilize the assets until the end of their useful lives, then it’s more rational and logical to apply the cost model. If management wishes to show that despite the assets are used by the company, they have fair value and could be potentially sold, then it’s better to apply the revaluation model.
You can apply these models class by class – not for all assets necessarily (but for all assets within the same class). S.
hi sir,
my name is farhan qureshi i have one question. there is was no accounting system. now they want to start accounting system butt which machinery they are using it is fully depreciated. but its working very well kindly tell me ho to revalue of machinery what will b his life and where i take as assets but his life is also completed to how i start the accounting for these
Hi Farhan, are you just implementing IFRS for the first time? If yes, then take the assets’ fair value as their deemed cost. If not, then you should do as described above. S.
Dear Silvia,
We have depreciated out full warehouse over the period of 20 years and carrying cost the same in 0 beginning of the year. However, we have done modification in cool room. We would like to charge depreciation for that over the period of five years. Please advise in this matter.
Thanks and Regards
Malav,
if you still use the warehouse and it’s carrying amount is zero, then you should correct the error in the previous years as written above in the article. Regarding cooling unit – yes, you can depreciate it over its useful life.
Thanks a lot. However, just to reconfirm that warehouse (20 years) and modification in cool room of warehouse (5 years) can have different useful lives. Kindly confirm.
Yes, they can.
Hello Silvia. I have one question regarding the methods. Can i use cost model for one class of PPE and revaluation model for other class of PPE? or do i have to use one chosen model for all the class of PPE?
Salome, you should use the same model for one class and for all assets within that class (not on asset by asset basis). However, you can use different models for different classes. S.
Silvia,
thank you so much!
The article was really helpful
Hi Silvia,
I have a question, if I have a NBV for a machine of 0$ for 4 years, and after realizing that it should have more useful live of 3 years, and we used the FV method for revaluation for 200$. We book depreciation expense again on 3 years starting from 200$?
Thank you
Technically speaking yes, but remember that you should apply the revaluation model for all class of assets, not on one by one basis – so unless you apply revaluation model on all of your machines, then you would not be doing the right thing. S.
Thank you for this excellent solution.
Please assist by sending the download link for the excel file to my email at tyman4top@gmail.com.
Best regards.
Dear Silvia,
Thanks a lot for this nice article and video.
I’m currently working on a program that would handle depreciations in aviation. The start value of the asset is the invoice amount. The asset starts being monthly depreciated (not annually as in your article) and several months later you get a discount that should be applied to the start value (Invoicing takes decades in aviation industry 🙂 ) .
What should happen if the carrying amount is lower than the new start value?
Ex: Start value: 1200$ – Useful life: 12 months -> monthly depreciation: 100$
10 months later you have a carrying of 200$ and you receive a 250$ discount.
Thanks in advance for your reply (& time)
Best regards,
Dany
Hi Dany,
well, this situation is not directly addressed by the standards – you can use IAS 8 as the reference, but I would not call it either estimate or error. The question is whether the discount was promised at the time of purchase as a part of a contract or not. If yes, and you expect to receive it, then you should recognize the discount right at the initial recognition as a deduction from the cost of an asset. If not, and the discount was for some reason promised and provided subsequently, then it depends on timing and materiality. S.
Hie Silvia, i have client who have scaled down his operations and due to the scaling down of the operations the client still owns some of the assets which are not specialized, the assets are fully depreciated. The client intends to resume operations next year.May you help me with the accounting treatment.
Hi Silvia, I have an query in my mind what accounting treatment of an FA which i received as a gift suppose from my father, will i show it in my company books as i am using this FA in my company admin purpose not in my personal use.
If i not show in books how will i convince my auditor that it was received in gift not purchased by company.
In the UK we can leave the NBV of an asset as zero. I was working for a steel company that had a 150 year old metal press. NBV was zero. Company was bought out and asset revalued at £1.5M! Useful life = another 100 years probably…
Dear Silvia,
our company has more than 60,000 non-current assets, and almost 13,000 assets have Zero NBV. it is impossible to adjust retrospectively because of error as our company in history never accessed the useful life of assets. Ww want continue cost model for fixed assets, what would be right treatment for assets having zero NBV , Using cost model but impractical to retrospectively adjust the depreciation expenses.
if we don’t know when assets was fully depreciated then what would be the treatment.?
Hi Imran, well, if it takes undue cost and effort to analyze every single asset (I believe so), then how about grouping them and trying to estimate their average age and restatement per groups? Make some approximation? It would not be precise, but much better than presenting it with error. Or, you can risk an audit qualification in your audit report. S.
Excellent presentation on the subject and the simplification breaks it into bite size understanding of options and treatment….
How can I download excel file
thanks
It is available within the IFRS Kit.
I already have access to IFRS kit
and nothing excel available under “IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors” Section, there are three articles and two videos
Thanks
Ah, OK, in this case I’ll send it to your e-mail address and I’ll attach it to the IFRS Kit – apologies!
Hi, Silvia,
The Excel file for this excellent presentation is not within the IFRS kit. Would you like to put it here or send to me an email?
Thanks for the reminder, I will insert it to IAS 8 topic, but if you send me an e-mail, I can send it.
How to calculate the estimated useful life of fully depreciated assets?
You do not calculate it, you estimate it – that’s the trick. You should look at your asset, its physical condition, your business operations and intentions and ask – how long am I going to use that asset until it breaks? When do I plan to replace it? When are there more modern and technically better assets available and this one becomes obsolete?
Thanx a lot for the easy and simple explanation of such complex subject.
Hi Silva,
How do you do?
We are working in the beer manufacturing Company. And, we are adopting IFRS for the first time. We have advertising materials like refrigerators which were given to our customers as a promotional campaign. How do we treat these materials as per IFRS? Can we treat them as a prepayment of advertising expense and measure the expired portion as per their economic life or as a fixed assets?
Our proposal to the Company is to treat as a prepayment of advertising expense since the definition of these assets could not meet as per IAS 16 and IAS 38.
Again, our business purpose is a production of bottled beer to sell to our whole sellers not as a retailer which cools and sales bottled Beer!
Thanks for your deep assistance in advance.
Regards,
Hello Madam.
Thanks for a conceptual article
Dear Silvia,
Many thanks for your great efforts. In fact we have argument with our external auditors in how to treat the positive income from the re-estimate the useful live of assets, is it in P&L statement or should be go direct to the Retained Earning?,
your valuable explanation will be highly appreciated.
Regards,
Well, this is a change in estimate and you account for it prospectively – thus there should not be any correction of past periods and no reason to correct previous statements via retained earnings. This relates to the depreciation charges AFTER you change the estimate. You DO NOT recalculate previous depreciation charges. However, if you are correcting error and you treat change in useful lives as a correction of error that should have happened in the previous periods, then you book it retrospectively.
Dear Silvia,
greetings
i am working in shipping company and our value of PPP is shown in books at residual value ( Fully Depreciated -Some some residual value) but we expet that the PPE will be used for nother 10 yeras ( Cash Generating Uints) so how we deals with and Increase the value of assets in balance sheet
Hi Pankaj,
that is a change in accounting estimate, if either the useful life changes (here it increases by another 10 years), or residual value changes. S.
Many Thanks
silvia really you are a great personal
Hi,
You lost me a bit when you said:
“If after considering all these aspects you still want to switch from cost model to revaluation model, then IAS 8 makes it easy for you. You don’t need to apply the new policy retrospectively, just prospectively – so no restatement of previous periods.”
I thought you mentioned earlier that once there is a change in policy the new policy must be applied retrospectively?
Hi Silvia,
May thanks for sharing this article.
You are a source of great knowledge.
Thanks!
Hello sivia ,
could you please explain to me why the change from Cost model to Fair value model is considered change in Accounting policy while change from Cost model to revaluation model consider change in estimate ? i am confused about that
Thank you so much Silvia. The article is of great help. I will appreciate your reply to Nijem’ s question in the comment box. I believe it will help a great deal to differentiate between Fair Value and Revaluation.
thank you
Nice. Nice.
Hi Silvia,
We have a situation where we disposed some asset in error in previous years.
How do we correct this error.
Thanks
Retrospectively if that error is material. Please refer to this article for further help.
Thank you Silvia, what if the error is immaterial. Please can you provide the journal entries for the correction. I am going to consider the value in use on those assets and it that as base. For example if the machine has further useful life base on value in use as $100000 how I am going to account for the amount and depreciation with accumulated depr. Is that going to revaluation of assets? I am really confuse it is a first time I come across this challenge.
Hi Silvia,
I am from Bhutan. I am interested to learn valuation of property, plant and equipment and provide consultancy services on PP & E. I went through your lecture and I am very much impressed by the quality of education. Please help me.
Hi Buddhi,
thanks a lot for writing me a comment. Well, I teach IFRS, not valuation – so really, you should seek for good valuation courses instead. And if you find a good one, please recommend it to me and this community – we will all appreciate. Have a nice day!
Dear Silvia,
Thank you so much for your continuous and useful articles, i am looking forward to subscribe to the IFRS kit too but right now i have a question: my company had used a machinery and fully depreciated and there was no mistake in estimating its useful life and as well the calculations. However, my company had invested some amount on the particular asset and want to use the asset for few years, in this matter, i would like to hear your advice and suggestion as per IFRS.
Thank you
Dear Silvia,
Great article here.
But i’m a bit curious with the requirement of IAS16.79(b).
If accounting standards requires us to review our estimation of useful lives, why they also encourage preparer to disclose cost of fully depreciated assets [IAS16.79(b)]?
By disclosing this, would this implied that their useful live is not reviewed and non compliance to the requirement to revise estimation of useful life?
Would love to hear your views on this.
Thank you.
That’s my question to Silvia as well.
Thank you in advance for the response.
Sorry Silvia but IAS 08 requires retrospective application of change in accounting policy so if someone adopts Revaluation model shifting from cost model then why you said he has not to restate previous periods?
Kindly elaborate
I think I have already explained this somewhere about. It is explicitely stated in IAS 8 that in this particular situation, you do not account retrospectively.
Yes after this comment i tried to read again IAS-08 and I’ve found this exception in IAs-08 but just want to confirm that either i got right para or not. I read this exception in para 17 of IAS 8.
Were you also refering to that para ma’am?
Yes, exactly.
Thanks, for your detailed explanation!!
dear SILVIA, thank you very much, really I’m too late to sharing your video, courses and graphics, but I have a chance thank’s god. I would explain to you my grateful thanks for your pretty graphics and easy courses.
I am a finance inspector, I want to improve my knowledge. Thank’s again Miss SILVIA.
Thank you 🙂
Hi Silvia,
I have taken training on IFRS standards a week ago which was delivered by the university lecturers and found it interesting. Besides, I am following and reading your very useful continuous lectures via email. Thanks for that! Currently, I am working in the Risk Management Department of a local Development BANK in which lending is one of its main activities. So, which IFRS standards should I focus on?
Regards
Hello Sirak, great, I am glad that you took the training and on top of that, that you like my emails! As for risk management – just focus on IFRS 9, more specifically expected credit loss and related issues, plus supplement that with IFRS 7 and IAS 32.
Hi Silvia.
Thank you for the great work in making IFRS so interesting to learn.
Please items like vehicle and computers were purchased specifically for a project and captured in the contract price of the project. The project could took 2years to complete and transferred to Fixed Assets. The items of fixed asset nature – vehicles and computers are still in good condition, and so used in the organization. What should be the treatment on such assets.
1. Should the total cost of a motor van bought specifically for a project be expensed to the project?
2. Do you estimate the remaining life of the van after the project?
3. How do you ascertain the value of the project motor van that has more useful life and actually used in the business.
3. How do you depreciate such project residual assets which have their cost fully charged to the project?
Thank you
Your articles are informative, thank you for taking the time to explain. Was wondering if there is link for schedule of depreciation rates and useful life for PPE and Motor Vehicles.