1 Introduction to published accounts Chapter learning objectives

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Chapter 2

A change from one method of providing depreciation to another:

 is permissible only on the grounds that the new method will give a fairer
presentation of the results and of the financial position
 does not constitute a change of accounting policy
 is a change in accounting estimate.
The carrying amount should be written off over the remaining useful life,
commencing with the period in which the change is made.
If an asset is classed as a complex asset, it may be thought of as having
separate components within a single asset, e.g. an engine within an aircraft will need replacing before the body of the aircraft needs replacing. Each separate
part of the asset should be depreciated over its useful life.

^Illustration 3 – Depreciable amount

An asset costs $100,000 and has an expected useful life of ten years. The purchaser intends to use the asset for six years at which point the expected residual value will be $40,000 (at current prices). What is the depreciable amount? Solution The depreciable amount is $(100,000 – 40,000) = $60,000 spread over six years.

^Review of useful lives and residual values

Useful life and residual value should be reviewed at the end of each reporting period and revised if expectations are significantly different from previous estimates. The carrying amount of the asset at the date of revision less any residual value should be depreciated over the revised remaining useful life.

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