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Forensic Accounting

Can I change the depreciation rate of an asset?

We purchased some machine for $43000/= two years ago & started depreciating at an annual rate of 10%. But it seems this machine can not be used for more than 04 years more due to changes in technology. What should be the accounting treatment for this? Can I depreciate the remaining Net Book Value at 25%?

asked Feb 15, 2013 in IAS 16 - Property, Plant and Equipment by anonymous
retagged Apr 23, 2013 by Mysio

3 Answers

+2 votes
Best answer
No. you can't. Depreciating the current net book value over the next 04 years is not the correct accounting treatment. Since you say you expect the technology to be changed in 04 years, it is an indication of an impairment loss. In other words machine's carrying amount is likely to be in excess of the greater of its net selling price and its value in use.

First you need to calculate the amount of impairment and pass the entries. For instance lets assume your net book value/carrying value is now $38,700/= and you find that the carrying value is $10,000 more than the greater of its net selling price and its value in use. Then an impairment loss of $10,000 should be recorded as follows:

Impairment a/c         Dr $10,000 (P&L account)
Provision for Impairment a/c         Cr $10,000 (balance sheet)

Now your machine's carrying amount is $ 33,000 which can be depreciated in 04 years since you know the machine can be used for another four years only.
answered Apr 4, 2013 by Tina Level 5 Member (11,560 points)
edited Apr 4, 2013 by Mysio
0 votes
Yes you can.  IAS 16.51 states:
"The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, any change is accounted for prospectively as a change in estimate under IAS 8." So I think you can depreciate current NBV at the rate of 25%
answered Apr 3, 2013 by anonymous
0 votes
Yes. You can change depreciation rate. And you don't need to make retrospect effect..just take effect from the date when you change method.
answered May 6 by Honey92 Level 1 Member (2,000 points)