CSEET · Fundamentals of Accounting · Depreciation and Amortization
Gupta Industries has a machine that becomes temporarily idle because of a slump in demand. It is not retired from active use and held for disposal, and it is not fully depreciated. Under AS 10, which statement is correct for a time-based depreciation method?
Depreciation continues. Under AS 10 it does not cease when an asset becomes idle or is retired from active use without being held for disposal, unless the asset is already fully depreciated. Only usage-based methods may produce a zero charge when there is no production.
- ADepreciation stops until the machine is used again
- BDepreciation continues, because it does not cease merely because the asset becomes idleCorrect
- CDepreciation is reversed for the idle period
- DDepreciation is charged at double the normal rate
Explanation
AS 10 states that depreciation does not cease when an asset becomes idle or is retired from active use but not held for disposal, unless it is fully depreciated. Stopping depreciation, as in the first option, contradicts this. Only usage-based methods can give a zero charge when there is no production.
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