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CSEET · Fundamentals of Accounting · Depreciation and Amortization

Sharma Traders bought a machine that was installed and ready for its intended use on 1 January, but it began production only on 1 April because orders were delayed. Under AS 10, from when does depreciation begin?

Depreciation begins on 1 January. AS 10 says depreciation starts when the asset is available for use, that is, in the location and condition necessary to operate as management intends, regardless of when production actually begins.

  1. A1 April, when production actually starts
  2. B1 January, when the asset is available for use in the location and condition neededCorrect
  3. CThe first day of the next financial year
  4. DThe date the machine is eventually sold

Explanation

Depreciation begins when the asset is available for use, meaning it is in the location and condition necessary to operate in the manner intended by management. The machine met this on 1 January. Waiting for actual production, as in the first option, is incorrect.

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