Ameya Makarand Lonkar (CA Final Student) (56 Points)
25 October 2011Whenever there is change in method of depreciation, retrospective effect has to be given. However, there is an asset, which is carried at scrap value (i.e., full depreciable amount is already provided and thus, for last some years, no depreciation is provided on it). Should retrospective effect be given for such asset as well?
Pls explain. Thanks
Phalgun
(Audit Manager)
(327 Points)
Replied 25 October 2011
Yes whenever there is a change in the method of depreciation retrospective effect as per Accounting standard 6 is provided for. With respect to residual value the standard states when an asset is discarded or destroyed or demolished the net surplus or deficiency is to be shown separately.
As per your query there exists scrap & there is change in the method of depreciation, depreciation is not provided for "last some years" means the scrap value shown will not be true as it will be unnecessarily inflated so for proper disclosure of scrap value & correct measurement of depreciation. Depreciation is to be computed giving retrospective effect.
Kindly correct if i am wrong ..........
Ameya Makarand Lonkar
(CA Final Student)
(56 Points)
Replied 26 October 2011
Thanks alot Phalgun. I agree with one point that, if the aseet is still in use, the scrap value is inflated and in such case, retrospective effect should be given. Should the treatement remain same if the asset is carried at nominal value, say Re.1?
shakuntala chhangani
(FCA Course co-ordinator WIRC coaching centre)
(2525 Points)
Replied 30 October 2011
Hi friends, as given in the question, asset it carried at its Scrap value. when it has already reached its residual value, what amount of further dep will u w/off to P/l A/c? scrap value is not dependent on life of the asset. It is the estimated amount to be realised when the asset is finally disposed off at the end of its useful life. say, if the asset is of Rs. 1,00,000 and RV is 10,000 then depreciable amount will be Rs. 90,000 which will be w/off over assets useful life. If u want to make changes in the useful life then also it will not affect the amount of dep. now (AS 6), as this change is prospective and assets has already been fully depreciated. If u feel that the scrap value was not proprly estimated then revalue the asset (AS10).
Regards, CA Shakuntala Chhangani
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