AIS 16 Useful life and cost model

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Mathew Matt
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AIS 16 Useful life and cost model

Post by Mathew Matt »

I have two questions here;
1. If a company, uses cost model for its PPE, what happens if the asset's NBV becomes zero but the company is still using it?

2. For reducing balance method i realise the asset carrying amount takes significant amount of time to get to zero, i am aware of the need to have a residue value which most companies never have. in that case what could some one advice a company using reducing balance method with no residual amounts of the assets...cause it looks like asset will keep being depreciated even beyond their useful lives...i need advice and a good read on it

Thanks
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JRSB
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Re: AIS 16 Useful life and cost model

Post by JRSB »

1, nothing you still show it in the note at cost of x and acc dep of x too. But maybe your depreciation policy needs to be revised, since you have not estimated the useful life correctly.

2, In practice I would just write off (or depreciate to zero) the small residual balance at end of useful life.
"I am always ready to learn although I do not always like being taught" - Churchill
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Marek Muc
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Re: AIS 16 Useful life and cost model

Post by Marek Muc »

ad. 1 what JRSB wrote + additional disclosure is encouraged in IAS 16.79b)

ad 2. hmm, I'm a bit surprised by JRSB's answer, because the approach that I know is different... I've described it in the knowledge base and there are two examples there, the second one is for an asset without residual value:
https://ifrscommunity.com/knowledge-bas ... nce-method

what do you think about this approach, JRSB?
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exIFRS
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Re: AIS 16 Useful life and cost model

Post by exIFRS »

For what it's worth, I would have suggested the same approach to question 2 as JRSB. You set the residual value to some trivial value, and just add it to the final depreciation amount. Maybe it is a UK/Commonwealth approach :D.
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Marek Muc
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Re: AIS 16 Useful life and cost model

Post by Marek Muc »

Interesting!

But if you set the residual value to a trivial amount, and want to have a constant depreciation rate (unless you don't?), the depreciation charge for first year is disproportionately high.

Modification of the first example from the kb, residual value set to 0.6 (i.e. 5% of the cost):
depreciation.JPG
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JRSB
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Re: AIS 16 Useful life and cost model

Post by JRSB »

Marek, I think the difference is that you, as ever, are talking about how to do it properly, and I'm talking about what people actually do :lol: :lol:
"I am always ready to learn although I do not always like being taught" - Churchill
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Marek Muc
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Re: AIS 16 Useful life and cost model

Post by Marek Muc »

:lol:

believe it or not, I also try to keep things simple, but it seems that I'm not trying hard enough :)

but under the Commonwealth approach ;), the last year depreciation charge can be much higher than the charge from previous years! see the example from kb (no residual value):
depreciation3.JPG
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