Depreciation of fixed assets
Theory:
- fixed assets should be depreciated over their useful life
- the useful life is defined as the time of use of the fixed asset by the entity and is often different from the economic use of the fixed asset
- depreciation applies to the initial value of the fixed asset reduced by the projected residual value (net realisable price of the fixed asset, IAS 16 par. 50-53).
Practice - examples of errors:
- the depreciation base does not provide for the residual value
- depreciation is not adjusted to the actual period of use
- Often depreciation rates are applied as specified in the Corporation Tax regulations and not compliant with the actual period of use
- There are no regular checks of the period of use and the residual value
