Depreciation

[Tricky one]

Hi, quick question. Do I decide myself the useful life of fixed asset or there is some kind of standarts?
Thanks

 

[Graham_07]

Accounting Standards ( See The Accounting Standards Board which you can get through www.frc.org.uk ) set the rules on depreciation. You then adopt those most appropriate to your circumstances. There are conventions in relation to certain classes of assets. The overriding principle would be to depreciate assets over their "expected useful lives"

[broken link removed] is the guiding document.

 

[Tricky one]

From FRS15 I understand I can decide myself the useful life of asset to show fair and true view. Am I right? And now arises new question - do I need revalue asset every year?Asset costs just 3000 and life 4 years.

 

[John Rambo]

From FRS15 I understand I can decide myself the useful life of asset to show fair and true view. Am I right? And now arises new question - do I need revalue asset every year?Asset costs just 3000 and life 4 years.

You are correct. By applying an inappropriate rate of depreciation (e.g. depreciating a machine with a useful life of 5 years over 10 years) you would be overstating the actual value of the asset on the balance sheet. In this case you should not have to revalue the asset every year as its net book value ("NBV") on the balance sheet will change every year as a result of the depreciation (e.g. after 2 years its NBV will be €1,500). Revaluation is more relevant with (say) land and buildings (especially these days). Remember, capital allowances (i.e. "tax" depreciation) will still (most likely) be over 8 years (i.e. at a rate of 12.5% per year).

 

[Tricky one]

Thank you so much for replies. I am aware of differene for depreciation and wear and tear at 12.5%.

 

[patftrears]

Thank you so much for replies. I am aware of differene for depreciation and wear and tear at 12.5%.

I depreciate everything at the capital allowance rate to make it easy and simple.
Why are you depreciating assets at higher amounts, what will it do for you ?

 

[Graham_07]

I depreciate everything at the capital allowance rate to make it easy and simple.
Why are you depreciating assets at higher amounts, what will it do for you ?

Depreciation as applied through applicable Accounting Standards and Wear & Tear as determined by changing finance acts are two different things.

Financial Statements must comply with applicable accounting standards.

W & T rates have changed numerous times in recent budgets, and those changes were mostly resulting from tax collection needs rather than ones which refected actual depreciation policies which ought to be applied.