ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets
Which of the following is correct about depreciation under IAS 16 Property, Plant and Equipment?
The depreciation method should reflect the pattern in which the asset's future economic benefits are consumed. Depreciation allocates cost over useful life; it is not a cash reserve, is not triggered by fair value falls, and is not normally charged on land.
- ALand with an unlimited life is depreciated over 50 years
- BDepreciation is charged only when an asset's fair value falls below its carrying amount
- CThe depreciation method should reflect the pattern in which the asset's economic benefits are consumedCorrect
- DDepreciation is a means of setting aside cash to replace the asset
Explanation
IAS 16 requires the method to reflect the expected pattern of consumption of benefits. Land is normally not depreciated, depreciation is not driven by fair value, and it is an allocation of cost, not a cash reserve.
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