How can I change the depreciation policy?

Question

Our company has a fleet of motor vehicles which are currently depreciated at cost at 15% per year on straight line basis. But we want to change depreciation method to base on "cost less residual value" so that the depreciation rate is lower. Can anyone tell me whether this is possible under IFRS?

Answer 1

Yes, this can be done. It is allowed in IFRS.

What you want to do fall under IAS 8 changes in accounting estimates.

Answer 2

IAS 16.53 - "The depreciable amount of an asset is determined after deducting its residual value. In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount."

If you have not considered residual value by error then account for as correcting an accounting error (ie. retrospectively).

If you considered that residual value is zero before and now you think that there is a significant residual value, then account for as a change in accounting estimate (ie. prospectively).

Comments

You can not consider a change in accounting estimate as an error, you must adjust prospectively.

Answer 3

Review estimated useful life at each financial year end and recognize the change in accounting estimate per IAS8 (Revised depreciation charge = Carriying Amount at revision date / Remaining useful life)
Just remember that not resstatement is permitted of previous period's financial statements is permitted. IAS8 requires recognizing change in accounting estimates prospectively (now and in the future)

Answer 4

With due respect..Depreciation with straight line method is calculated as Cost- R.v ..so you are already using method what you want to use now.
How ever you can use Reducing balance method to get lower depreciation..in which you need to calculate depreciation on *** book value.