Depreciation
IAS 16 allows two methods of depreciation:
u Straight line
Depreciation = (cost –residual value)/Useful economic life
Or
(cost – residual value) * % (depreciated rate)
u Reducing balance (Depreciated on Net book value)
Depreciation = NBV @ opening * % (depreciated rate)
u Additional factors to consider
l Depreciation starts when the asset is ready for its intended use and not from when it starts to be used, until the asset is derecognized , even if it is idle.
l The useful life of assets and depreciation method should be reviewed at least at each financial year end, and when necessary, revised. (IAS 8)
l Separate component of PPE should be capitalized as separate assets and depreciated over their useful lives
l No depreciation for land