1 Introduction to published accounts Chapter learning objectives

Tangible non-current assets

^Illustration 4 – Revision of useful life

An entity purchased an asset for $20,000 on 1 January 20X3. Straight- line depreciation of $5,000 per annum has been charged, assuming a four-year useful life with no residual value. On 1 January 20X5 the annual review of asset lives was undertaken and the remaining useful life for this asset was estimated at four years. The financial statements for the year ended 31 December 20X5 are being prepared. What is the depreciation charge for the year ended 31 December 20X5? Solution The depreciation charge for current and future years will be: Carrying amount as at 31 December 20X4 $20,000 – (2 × $5,000) $10,000 Remaining useful life as at 1 January 20X5 4 years Annual depreciation charge ($10,000/4 years) $2,500

^Major inspection or overhaul costs

Inspection and overhaul costs are generally expensed as they are incurred. They are, however, capitalised as a non-current asset to the extent that they satisfy the IAS 16 rules for separate components. Where this is the case they are then depreciated over their useful lives, i.e. until the next inspection or overhaul is due

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Chapter 2

^Illustration 5 – Overhaul costs

^An entity purchases an aircraft that has an expected useful life of 20 years with no residual value. The aircraft requires substantial overhaul at the end of years 5, 10 and 15. The aircraft cost $25 million and $5 million of this figure is estimated to be attributable to the economic benefits that are restored by the overhauls. In year 6, the cost of the overhaul is estimated to be $6 million.