06-29-2007, 09:40 PM
Dear,
Accounting has to be done under some identifiable accounting framework. The books written by various international writers could portray varying methodologies that might be attributed due to different applicable frameowrks.
In Pakistan the applicable accounting framework is Companies Ordinance, IFRSs and any other law relevant to preparation of accounts of some entity.
UK or USA have varying frameworks due to local laws, local standards and other pronouncements.
However, as a student of accountancy in Pakistan, you have to follows applicable IFRSs and local laws where they override the IFRSs.
IAS-16 (being an IFRS) no where allows for or provides for ignoring residual value in the determination of depreciable amount where diminishing balance method is being used. For this purpose, I advise you not to follow merely the books which do not conform to IFRSs. You must have to study IAS-16 in original with all of its BASIS OF ACCOUNTING. Then you would be appreciated to discuss with me the issue of residual value.
Infact, people get disturbed form this concept becoz depreciation charge in straightline method is very much accelerated as compared to diminishing balance method on similar depreciation rate. An entity should determine the useful lives of fixed assets accurately and use the depreciation rates accordingly. The depreciation rates on straightline method, in my view, should not be equal to depreciation rates on deminishing value method, if useful is same.
However, determination of useful life/depreciation rate and determination of residual value are two different issues.
My opinion on your above question is still un-altered. A number of companies using diminishing balance method have re-assessed residual values and made required adjustments in the accounts last year, being the first year after change in IAS-16 regarding re-assessment of residual value at least at each financial year-end.
You please visit the stock exchange's library and study the annual reports/accounts of at least ten manufacturing companies and you will find such adjustments and disclosures of change in accounting estimates under IAS 8 in this regard.
Some companies might have not done this due to immateriality but their accounting policy on Property, Plant and Equipment will depict that such a re-assessment has been made every year.
However, re-assessment does not necessarily result in adjustment for change in accounting estimate due to materiality reasons.
You are once again advised to study IAS-16. (Revised).
Best regards,
Kamran.
Accounting has to be done under some identifiable accounting framework. The books written by various international writers could portray varying methodologies that might be attributed due to different applicable frameowrks.
In Pakistan the applicable accounting framework is Companies Ordinance, IFRSs and any other law relevant to preparation of accounts of some entity.
UK or USA have varying frameworks due to local laws, local standards and other pronouncements.
However, as a student of accountancy in Pakistan, you have to follows applicable IFRSs and local laws where they override the IFRSs.
IAS-16 (being an IFRS) no where allows for or provides for ignoring residual value in the determination of depreciable amount where diminishing balance method is being used. For this purpose, I advise you not to follow merely the books which do not conform to IFRSs. You must have to study IAS-16 in original with all of its BASIS OF ACCOUNTING. Then you would be appreciated to discuss with me the issue of residual value.
Infact, people get disturbed form this concept becoz depreciation charge in straightline method is very much accelerated as compared to diminishing balance method on similar depreciation rate. An entity should determine the useful lives of fixed assets accurately and use the depreciation rates accordingly. The depreciation rates on straightline method, in my view, should not be equal to depreciation rates on deminishing value method, if useful is same.
However, determination of useful life/depreciation rate and determination of residual value are two different issues.
My opinion on your above question is still un-altered. A number of companies using diminishing balance method have re-assessed residual values and made required adjustments in the accounts last year, being the first year after change in IAS-16 regarding re-assessment of residual value at least at each financial year-end.
You please visit the stock exchange's library and study the annual reports/accounts of at least ten manufacturing companies and you will find such adjustments and disclosures of change in accounting estimates under IAS 8 in this regard.
Some companies might have not done this due to immateriality but their accounting policy on Property, Plant and Equipment will depict that such a re-assessment has been made every year.
However, re-assessment does not necessarily result in adjustment for change in accounting estimate due to materiality reasons.
You are once again advised to study IAS-16. (Revised).
Best regards,
Kamran.
