INTRODUCTION Of Depreciation
INTRODUCTION
Depreciation expense is an accounting and financial reporting practice, used primarily by businesses that pay tax on income. On the income statement, this expense appears as a charge against income, that is, it is subtracted from sales revenues to produce a lower reported income. Over the years and at different periods in time, depreciation has meant different things to different people. According to International Accounting Standard (IAS) depreciation is the allocation of the depreciable amount of an asset over its estimated income either directly (as period expense) or indirectly (as expensed product cost).
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. Similarly, the article titled “Depreciation Accounting: A Historical Perspective also extensively discusses the issue of revaluation of assets. Revaluation in other words means an increase in the value of an asset to reflect its current market value.
THEME
An asset is revalued when management is of the opinion that the prevailing circumstances have caused a non-temporary change to the value of the asset. Usually, upward revaluations are made only for long term assets when its expected that the asset value is unlikely to fall below the book value during its remaining life.
The UK companies’ Act (1980) prior to the 1980amendments deemed that gains from revaluation are unrealized and should not be distributed as dividends. On the other hand, any unrealized losses on revaluation done on only some assets should be recognized.
Revaluation of Fixed Assets – Revaluation of a company 's assets takes into account inflation or changes in fair value since the assets were purchased or acquired. There must be persuasive evidence to revalue. The change in value is credited to the revaluation surplus (reserve) account. A downward revaluation is considered impairment.
Revaluation Surplus (Reserve) - The
Depreciation expense is an accounting and financial reporting practice, used primarily by businesses that pay tax on income. On the income statement, this expense appears as a charge against income, that is, it is subtracted from sales revenues to produce a lower reported income. Over the years and at different periods in time, depreciation has meant different things to different people. According to International Accounting Standard (IAS) depreciation is the allocation of the depreciable amount of an asset over its estimated income either directly (as period expense) or indirectly (as expensed product cost).
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. Similarly, the article titled “Depreciation Accounting: A Historical Perspective also extensively discusses the issue of revaluation of assets. Revaluation in other words means an increase in the value of an asset to reflect its current market value.
THEME
An asset is revalued when management is of the opinion that the prevailing circumstances have caused a non-temporary change to the value of the asset. Usually, upward revaluations are made only for long term assets when its expected that the asset value is unlikely to fall below the book value during its remaining life.
The UK companies’ Act (1980) prior to the 1980amendments deemed that gains from revaluation are unrealized and should not be distributed as dividends. On the other hand, any unrealized losses on revaluation done on only some assets should be recognized.
Revaluation of Fixed Assets – Revaluation of a company 's assets takes into account inflation or changes in fair value since the assets were purchased or acquired. There must be persuasive evidence to revalue. The change in value is credited to the revaluation surplus (reserve) account. A downward revaluation is considered impairment.
Revaluation Surplus (Reserve) - The
References: http://www.cluteinstitute.com/ojs/index.php/JBER/article/viewFile/2629/2675 http://www.aceee.org/files/pdf/white-paper/depreciation-tax-paper.pdf http://www.accountingin.com/accounting-historians-journal/volume-27-number-2/the-role-of-depreciation-and-the-investment-tax-credit-in-tax-policy-and-their-influence-on-financial-reporting-during-the-20th-century/ http://www.hkiaat.org/images/uploads/articles/AAT_Paper_7_Cost_Model_Full.pdf https://www.business-case-analysis.com/depreciation.html http://www.jstor.org/stable/pdfplus/10.2307/238282.pdf?acceptTC=true https://www.business-case-analysis.com/depreciation.html