AS6: Depreciation Accounting

AS6 Depreciation Accounting: Depreciation is a measurement of a depreciable asset’s wearing out, consumption, or other loss of value due to usage, passage of time, or obsolescence due to technological and market developments.

Depreciation is distributed such that each accounting period charges a reasonable share of the depreciable amount throughout the asset’s projected useful life. Depreciation is the amortisation of assets with a specified useful life. During the useful life of a depreciable asset, the depreciable amount should be assigned on a systematic basis to each accounting period.

Depreciable assets are those that depreciate over time.

[1] are anticipated to be employed throughout many accounting periods; and

[2] have a finite lifespan; and

[3] are assets owned by a business for use in production, supply, or administration.

The historical cost of a depreciable asset, or another quantity substituted for historical cost, minus the expected residual value, is the depreciable amount. The useful life of a depreciable asset refers to how long it is projected to be utilised by the company. A depreciable asset’s useful life is shorter than its physical life.

AS6 Depreciation Accounting

1] Method of the Straight Line (SLM)

2] The Method of Writing Down Values (WDVM)

It’s worth noting that more than one approach may be employed.

The technique of depreciation chosen should be implemented consistently from one period to the next. Only if the following conditions are satisfied could a change in depreciation method be implemented:

• The new approach must be used because it is mandated by law
• For the purpose of adhering to an accounting standard
• If it is believed that a change would result in a more appropriate financial statement preparation

When the method of depreciation is changed, depreciation should be recalculated from the date the assets are put into use using the new method. (i.e. IN RETROSPECT) The deficiency or surplus resulting from such recalculations should be adjusted through the profit and loss account in the year of change.

A change in accounting policy should be treated as such, and the impact should be quantified and disclosed. The usable life of important depreciable assets should be evaluated on a regular basis. The unamortized depreciable amount should be charged over the revised remaining useful life if the projected useful life is amended. (i.e. IN THE FUTURE)

Any addition or extension that constitutes a necessary component of an existing asset should be depreciated throughout the asset’s remaining useful life. Depreciation on such an addition may be applied at the same rate as depreciation on the existing asset.

AS6 Depreciation Accounting: Depreciation should be supplied separately on the basis of an estimate of its own useful life if an addition or extension has its own identity and may be utilised after the old asset is disposed of. When the historical cost of a depreciable asset changes due to an increase or decrease in the long-term liability as a result of exchange fluctuations, price adjustments, duty changes, or other factors, depreciation on the revised unamortised depreciable amount should be provided prospectively over the asset’s remaining useful life.

The following goods are exempt from this accounting requirement.

• Plantations and forests
• squandering resources
• Investing in research and development
• Generosity
• Animals in the wild

Obligations of disclosure: AS6: Depreciation Accounting

1] The previous price

2] Total depreciation for each chargeable class for the period

3] The cumulative depreciation associated with it

4] The depreciation approach that was employed ( Accounting policy)

5] Depreciation rates that vary from those required under the enterprise’s governing legislation.