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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


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