Accounting Standard on Property, Plant & Equipment (PPE) (AS-10) Treatment of Depreciation

Depreciable amount is: Cost of an asset less Residual value.

The depreciable amount of an asset should be allocated on a systematic basis over its useful life.

Depreciation Method

The depreciation method used should reflect the pattern in which the future economic benefits of the asset are expected to be consumed by the enterprise.

The method selected is applied consistently from period to period unless:

  1. There is a change in the expected pattern of consumption of those future economic benefits: Or
  2. That the method is changed in accordance with the statute to best reflect the way the asset is consumed

Commencement of period for charging depreciation

Depreciation of an asset begins when it is available for use i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by the management.

Review of residual value, useful life, depreciation method

Residual value, the useful life of an asset, depreciation method of asset should be reviewed at least at the end of each financial year. If there is change in expectation and  previous estimates , it should be accounted for as change in an accounting estimate in accordance with AS 5 ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies’.

Component Method of Depreciation:

Each part of an item of PPE with a cost that is significant in relation to the total cost of the item should be depreciated separately.

Example: It may be appropriate to separately depreciate the airframe and engines of an aircraft, whether owned or subject to a financial lease.

Accounting Treatment

Depreciation charge for each period should be recognised in the statement of Profit and Loss.

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Posted by:

CA Aman Aggarwal

AKGVG & Associates

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