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CSEET · Fundamentals of Accounting · Depreciation and Amortization

Which statement about the depreciation or amortization charge, as stated in AS 10 on Property, Plant and Equipment, is correct?

The correct statement is that the depreciation charge can be included in the cost of another asset. AS 10 says that when an asset's benefits are absorbed in producing other assets, the charge becomes part of their carrying amount, for example development equipment depreciation added to an intangible asset's cost.

  1. AThe charge may form part of the cost of another asset, such as depreciation of equipment used in development activities being included in the cost of an intangible assetCorrect
  2. BThe charge must always be recognised in the statement of profit and loss, never in the cost of any other asset
  3. CLand is depreciated over its useful life because its value always rises
  4. DThe useful life of an asset can never be shorter than its economic life

Explanation

AS 10 says that where the economic benefits of an asset are absorbed in producing other assets, the charge forms part of that asset's cost, e.g. depreciation of equipment used for development activities may be included in the cost of an intangible asset. The profit and loss option is wrong because it says 'always'. Land generally has an unlimited life and is not depreciated, and useful life may be shorter than economic life.

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