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CSEET · Fundamentals of Accounting · Depreciation and Amortization

A machine that has been taken out of active use and is held for disposal is no longer being used in production. As per the treatment in AS 10, when does depreciation on it cease?

Depreciation stops at the earlier of two dates: when the asset is retired from active use and held for disposal, or when it is derecognised. Mere idleness does not stop depreciation unless the asset is already fully depreciated, so being held for disposal is the trigger.

  1. AWhen the asset becomes idle for the first time
  2. BAt the earlier of the date it is retired from active use and held for disposal, and the date it is derecognisedCorrect
  3. COnly when the asset is fully depreciated, even if held for disposal
  4. DAt the end of the financial year in which the asset was purchased

Explanation

AS 10 states that depreciation ceases at the earlier of the date the asset is retired from active use and held for disposal and the date it is derecognised. An asset that is merely idle, not held for disposal, continues to be depreciated unless fully depreciated. Hence the first option is wrong, since idleness alone does not stop depreciation.

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