Page 252 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes 18. In case the depreciable assets are revalued, the provision for depreciation is based on the
revalued amount on the estimate of the remaining useful life of such assets. In case the
revaluation has a material effect on the amount of depreciation, the same is disclosed
separately in the year in which revaluation is carried out.
19. A change in the method of depreciation is treated as a change in an accounting policy and
is disclosed accordingly.
(The Accounting Standard comprises paragraphs 20-29 of this Statement. The Standard should
be read in the context of paragraphs 1-19 of this Statement and of the ‘Preface to the Statements
of Accounting Standards’.)
20. The depreciable amount of a depreciable asset should be allocated on a systematic basis to
each accounting period during the useful life of the asset.
21. The depreciation method selected should be applied consistently from period to period. A
change from one method of providing depreciation to another should be made only if the
adoption of the new method is required by statute or for compliance with an accounting
standard or if it is considered that the change would result in a more appropriate preparation
or presentation of the financial statements of the enterprise. When such a change in the
method of depreciation is made, depreciation should be recalculated in accordance with
the new method from the date of the asset coming into use. The deficiency or surplus
arising from retrospective recomputation of depreciation in accordance with the new
method should be adjusted in the accounts in the year in which the method of depreciation
is changed. In case the change in the method results in deficiency in depreciation in respect
of past years, the deficiency should be charged in the statement of profit and loss. In case
the change in the method results in surplus, the surplus should be credited to the statement
of profit and loss. Such a change should be treated as a change in accounting policy and its
effect should be quantified and disclosed.
22. The useful life of a depreciable asset should be estimated after considering the following
factors:

(i) Expected physical wear and tear;
(ii) Obsolescence;
(iii) Legal or other limits on the use of the asset.
23. The useful lives of major depreciable assets or classes of depreciable assets may be reviewed
periodically. Where there is a revision of the estimated useful life of an asset, the unamortised
depreciable amount should be charged over the revised remaining useful life.

24. Any addition or extension which becomes an integral part of the existing asset should be
depreciated over the remaining useful life of that asset. The depreciation on such addition
or extension may also be provided at the rate applied to the existing asset. Where an
addition or extension retains a separate identity and is capable of being used after the
existing asset is disposed of, depreciation should be provided independently on the basis
of an estimate of its own useful life.
25. Where the historical cost of a depreciable asset has undergone a change due to increase or
decrease in long term liability on account of exchange fluctuations, price adjustments,
changes in duties or similar factors, the depreciation on the revised unamortised depreciable
amount should be provided prospectively over the residual useful life of the asset.

246 LOVELY PROFESSIONAL UNIVERSITY