Accounting Concepts:
Depreciation, Depletion,
Revaluation, and Impairment
Depreciation, Depletion, Revaluation, and
Impairment
Depreciation
Depreciation is the systematic allocation of the depreciable amount of
an asset over its useful life.
The depreciable amount is the cost of an asset, or other amount
substituted for cost, less its residual value.
Depreciation of an asset begins when it is available for use and ceases
at the earlier of the date the asset is derecognized or classified as held
for sale.
The depreciation method used should reflect the pattern in which the
asset's future economic benefits are expected to be consumed. Straight-
line depreciation results in a constant charge over the useful life if the
asset's residual value does not change, while the diminishing balance
method results in a decreasing charge over the useful life. The units of
production method results in a charge based on the expected use or
output.
The straight-line method assumes that depreciation is a function of time
rather than a function of usage, the asset's economic usefulness is the
same each year, and the repair and maintenance expense is essentially
the same each period.
Useful life of Property, Plant and Equipment is the period over which an
asset is expected to be available for use by an entity or the number of
production or similar units expected to be obtained from the asset.
Revaluation
Under the revaluation model, an item of property, plant and equipment
whose fair value can be measured reliably shall be carried at a revalued
amount, which is the fair value at the date of the revaluation less any
subsequent accumulated depreciation and subsequent accumulated
impairment losses.
Revaluations shall be made with sufficient regularity to ensure that the
carrying amount does not differ materially from that which would be
determined using fair value at the end of the reporting period. The
frequency of revaluations depends upon the changes in fair values of
the items of property, plant and equipment being revalued, and the
entire class of property, plant and equipment to which the asset belongs
shall be revalued.
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