CAS-16: Depreciation and Amortisation

• What depreciation is, and when it starts (§§4.5–4.11, 5.1, 5.5)
• Choosing the method (§§5.10–5.16)
• Idle machines, revaluation and impairment (§§5.8, 5.9, 6.3)
• Amortising software and licences (§§4.1, 4.9, 5.4)

Chapters

1. A machine wears out a little every month · A machine paid for years ago still costs something every month it works (§§4.5, 4.6, 4.10, 4.11, 5.1, 5.5)
2. Years or pieces? · Pick the method that matches how the machine wears out (§§5.10, 5.11, 5.13, 5.16)
3. Two machines with no one to run them · Charge the uniforms only for machines that worked on them (§§5.8, 5.9, 6.1–6.5)
4. The pattern software · Things you cannot touch wear out too (§§4.1, 4.9, 5.1, 5.4, 5.15)
5. Spot the mistakes in the depreciation list · Use everything from this lesson (§§4.7, 5.8, 5.9, 6.3)

Key terms

• Depreciation (§§4.5, 4.6, 4.10, 4.11, 5.1, 5.5): Spreading the part of an asset’s cost that wears out (its cost minus its value at the end) over its useful life, counted in years or in pieces it will make. Land is not depreciated. It starts when the asset is ready to use.
• Choosing the method (§§5.10, 5.11, 5.13, 5.16): Use the method that follows how the asset is used up: equal each year, more in early years, or per piece. Review it at least once a year. Stop once the wearing-out part has been fully charged.
• Assigning depreciation (§§5.8, 5.9, 6.1–6.5, 7): Charge depreciation to the work that used the asset. Idle machines are an abnormal cost. Extra depreciation from revaluation and impairment losses stay out. Wear on a machine used to build another asset goes into that asset. Show depreciation as its own line.
• Amortisation (§§4.1, 4.9, 5.1, 5.4, 5.15): Spreading the cost of an asset you cannot touch (software, a licence, a design right) over its useful life. That life cannot be longer than the legal or contract rights, or 10 years from when it can be used. Its end value is usually zero.