Depreciation - aasb.gov.au

1 australian accounting StandardAAS 4 August 1997 DepreciationPrepared by thePublic Sector accounting standards Board of theAustralian accounting Research Foundation and by theAustralian accounting standards BoardIssued by theAustralian accounting Research Foundationon behalf of the australian Society of CertifiedPractising Accountants and The Institute ofChartered Accountants in AustraliaAAS 42 Obtaining a Copy of this accounting StandardCopies of this Standard are available for purchase from the AustralianAccounting Research Foundation by contacting:The Customer Service OfficerAustralian accounting Research Foundation211 Hawthorn RoadCaulfield Victoria 3162 AUSTRALIAP hone:(03) 9523 8111 Fax:(03) 9523 australian accounting Research Foundation (AARF) 1997.

2 The text,graphics and layout of this accounting Standard are protected by Australiancopyright law and the comparable law of other countries. No part of thisAccounting Standard may be reproduced, stored or transmitted in any formor by any means without the prior written permission of the AARF except aspermitted by 1034-3717 AAS 43 CONTENTSCONTENTSMAIN FEATURES OF THE STANDARD .. page 5 Section and page number1 Application .. 62 Operative Date .. 73 Purpose of Standard .. 74 Recognition of Assets withPhysical Substance .. 85 Recognising the Depreciable Amount .. 9 Revaluation of Depreciable Assets .. 13 Residual Values .. 13 Subsequent Costs .. 136 Monitoring DepreciationRates and Methods.

3 15 Regular Review of Depreciation Rates and 15 Changes to Depreciation Rates and Methods .. 157 Spares for Plant and Equipment .. 168 Buildings .. 179 Leasehold Improvements .. 1810 Retirement or Disposal ofDepreciable Assets .. 1811 Disclosures Relating to Depreciation .. 1812 Comparative Information .. 1913 Transitional Provisions .. 20 Initial Application of this Standard .. 20 AAS 44 CONTENTS14 Definitions .. 20 Depreciable Amount .. 22 CONFORMITY WITH INTERNATIONAL AND NEWZEALAND accounting standards .. page 23 BACKGROUND TO REVISION .. page 24 Defined words appear in italics the first time they appear in asection. The definitions are in Section 14. standards are printedin bold type and commentary in light 45 FEATURESMAIN FEATURES OF THE STANDARDA Note on the Scope of the StandardIn broad terms, the Standard covers two of assets with physical substance and which areexpected to be used during more than one reporting period, whichcorresponds with a requirement in International AccountingStandard IAS 16 Property, Plant and Equipment to recogniseproperty, plant and of all non-current assets with limited useful lives.

4 Which would include intangible of Assets with Physical SubstanceThe Standard requires the recognition of an asset with physical substancewhich is expected to be used during more than one reporting period whenand only when:(a)it is probable that the future economic benefits embodied in theasset will eventuate; and(b)the asset possesses a cost or other value that can be Standard requires non-current assets that have limited useful lives(depreciable assets) to be depreciated over those useful lives and specifies themanner in which this is to be Standard requires disclosure of specified information about depreciableassets and the allocation of the depreciable 46 accounting STANDARDAAS 4 Depreciation to paragraph , this Standard applies to generalpurpose financial reports of each reporting entity to whichAccounting standards operative under the Corporations Law donot to paragraph , this Standard applies to financialreports that are held out to be general purpose financial reportsby an entity which is not a reporting entity.

5 And to whichAccounting standards operative under the Corporations Law donot Standard does not apply:(a)in respect of accounting policies prescribed for non-current assets in other australian AccountingStandards; and(b)to non-current assets that are:(i)forests, livestock or similar regenerativenatural resources; or(ii)investment standards operative under the Corporations Law applyto companies and to other entities required by legislation,ministerial directive or other government authority to apply suchStandards. Reporting entities which are not required to applyAccounting standards operative under the Corporations Law arerequired to apply this standards specified in this Standard apply to the financialreport where information resulting from their application ismaterial, in accordance with australian accounting Standard AAS5 Materiality.

6 AAS 47 policies are prescribed for particular types of non-current assets in a number of other australian AccountingStandards, for example, goodwill in australian AccountingStandard AAS 18 accounting for Goodwill and deferred researchand development costs in australian accounting Standard AAS 13 accounting for Research and Development Costs .2 Operative Standard applies to reporting periods ending on or after30 June Standard may be applied to reporting periods endingbefore 30 June 4 Depreciation of Non-Current Assets , as issued in June1996, continues to apply for reporting periods that end before30 June 1998. However, where an entity elects to apply thisStandard early in accordance with paragraph it will not also beobliged to comply with AAS 4, as issued in June 1996, for thereporting periods to which the election operative, this Standard supersedes AustralianAccounting Standard AAS 4 as issued in June of purpose of this Standard is to.

7 (a)require the recognition of assets with physical substancethat are expected to be used during more than onereporting period and which meet specified criteria(b)require the consumption or loss of future economicbenefits embodied in non-current assets with limiteduseful lives to be recognised(c)require disclosure in the financial report of informationin relation to depreciable non-current assets and theallocation of the depreciable establishment of recognition criteria for assets with physicalsubstance that are expected to be used during more than oneAAS 48 and the establishment of accounting standards for thedepreciation of non-current assets will assist in ensuring that usersof general purpose financial reports are provided with relevant,reliable and comparable information about the Depreciation of non-current assets for the purposes of assessing the performance,financial position, financing and investing.

8 And compliance of recognition of non-current assets without physical substance(intangible assets) is outside the scope of this of Assets with Physical to paragraph , an asset with physical substancewhich is expected to be used during more than one reportingperiod must be recognised when and only when:(a)it is probable that the future economic benefitsembodied in the asset will eventuate; and(b)the asset possesses a cost or other value that can bemeasured entity may elect not to recognise assets and liabilities arisingfrom agreements equally proportionately unperformed, exceptthat, where another accounting Standard sets out requirementsfor the recognition of such assets and liabilities, therequirements of that Standard must be practice, assets and liabilities arising from agreements equallyproportionately unperformed that would satisfy the recognitioncriteria set out in this Standard have usually been recognised onlyin respect of particular types of agreements, such as finance many other agreements.

9 Significant uncertainty may exist as towhether the definitions of, and recognition criteria for, assets andliabilities would be satisfied. In addition, substantial difficultiesmay arise in determining a reliable and appropriate measure forassets and liabilities which may arise from these 49 the Depreciable depreciable amount of a depreciable asset must be allocatedon a systematic basis over its useful life. The depreciationmethod applied to an asset must reflect the pattern in which theasset's future economic benefits are consumed or lost by theentity. The allocation of the depreciable amount must berecognised as an expense, except to the extent that the amountallocated is included in the carrying amount of another estimating the useful life of a depreciable asset, considerationmust be given to the following factors:(a)expected physical wear and tear;(b)obsolescence.

10 And(c)legal or other limits on the use of the depreciable amount must be allocated from the time when adepreciable asset is first put into use or held ready for an asset is a complex structure made up ofinterdependent sub-structures which require installation insuccessive stages, it must be considered as being held ready foruse only after installation has been completed to a stage whereservice or saleable product can be depreciable amount of any addition or extension to anexisting depreciable asset which becomes an integral part ofthat asset must be allocated over the remaining useful life ofthat depreciable amount of any addition or extension to anexisting depreciable asset which retains a separate identity andwill be capable of being used after that asset is disposed of mustbe allocated independently of that existing asset on the basis ofits own useful term Depreciation is often used interchangeably with the term amortisation.