13 December 2013
My query is relating to depreciation on building..
Depreciation is measurement of loss of reduction in value of depreciable asset aris due to passage of time ,use and technologies change in market.
We depreciate the asset due to reduce its value by time to time .But how can we say that building is depreciable asset ? As it has always appreciation in value by time to time .Its value will increase in future at market.So why we charge depreciation on building ?
13 December 2013
Let me clear one point, when I say "Building" , it excluding the land on which the building is constructed. In that case, the separate accounting has to be done in the books of account as per the AS-10, AS-6 and read with the framework on Indian GAAP.
Moreover, building is depreciable assets as it has limited life, and the land is non-depreciable assets any way....
I hope you get the answer...
However, I am surprised that in practical most of the professional do not follow this practice....
13 December 2013
yes mr.sanjeevji i agree that the land is excluded for depreciation because it has unlimited life and its value always appreciates in future.but the structure on land (i.e.,building )why is to be depreciate as it has value increasing in future and it is practical fact then why charge the depreciation on building ?...that's my question ...
13 December 2013
building value is not increasing but only land value increases as there is shortage of land on earth against ever increasing population.
1. building never has an unlimited life. So if you keep holding the building, it shall require rebuilding or repairs after some time. Therefore depreciation is charged.
2. the appreciation in value, even if we assume is only for the building and not for the land, has no relation to the depreciation. appreciation only reflects the replacement value. the land is not depreciated because it doesn't require any cost for re-building. But a building would require money for re-construction or repair. thats why depreciation is charged.
3. if you construct a building in Thar Desert, it may not appreciate. The appreciation is a reflection of demand and supply for the land.
I firmly agree with Sanjeev Sahab and Tushar Bhai's comments.
CAclubindia
