Depreciation Checklist

When determining how a given asset should be depreciated the following steps should be taken.

  • Identify the "nature" of the service potential provided by the asset, e.g. units of output, economic, social or environmental.
  • Identify whether asset is subject to cyclical maintenance or not.
  • If the asset has significant components with different patterns of consumption, depreciation should be calculated separately for each component.
  • Identify the factors that drive consumption, e.g. age, physical condition, functionality, utilization, obsolescence, capacity, safetym etc.
  • Determine the "Pattern of Consumption", i.e. constant, increasing, decreasing, haphazard.
  • Determine the residual value and calculate the depreciable amount.
  • Determine the useful life & RUL.
  • If the pattern of consumption, residual value or useful life has changed from the previous year, either the entire class should be revalued applying the new assumptions or the assumptions should be adusted ensuring that changes are prospective and not retrospective, i.e., the opening WDV should remain the same.
  • Ensure that:
    • the depreciation methodology matches the pattern of consumption.
    • only the "depreciable amount" is depreciated
    • the asset is depreciated over the useful life in a systematic way.
    • technical & commercial obsolescence is considered.
    • maintenance & capital is treated in accordance with AASB 116.
    • the "renewals annuity approach is not used.
    • any critical assumptions used can be supported by "sufficient and appropriate" audit evidence.

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