UK Depreciation Change

[DB1867]

Hi,

I've recently joined a company reporting under FRS102 for a YE Jun.

The depreciation has been calculated annually i.e. an asset bought on Jun 28th would have a full years depn recorded in the accounts for the YE Jun 18.

I would like to move to a monthly calculation basis, which in the above example would result in a single months depn being charged.

There is a difference between the 2 methods to record in the year the change is made and i was wondering how this should be reported. Do i have to adjust the prior year closing balances for example and add a disclosure note detailing the change?

The company isn't currently audited, but its heading that way shortly

Thanks

 

[bklynboy]

Too me first method is not following proper accounting since no depreciation is taken for part of a year asset is used. What you are proposing is correct and is an error correction - depending on materiality may need to restate prior years.

 

[DB1867]

Too me first method is not following proper accounting since no depreciation is taken for part of a year asset is used. What you are proposing is correct and is an error correction - depending on materiality may need to restate prior years.

Thanks. There's a full years charge in the first financial year, despite owning the asset for just a few days. I dont think theres an error, but the application of FRS102 has changed for sure

 

[bklynboy]

Thanks. There's a full years charge in the first financial year, despite owning the asset for just a few days. I dont think theres an error, but the application of FRS102 has changed for sure

Not sure I follow but then again I only follow US GAAP and not IFRS - just assumed they are the same as its seems strange you pick up a whole year of depreciation the first few days you own an asset

 

[Fidget]

Thanks. There's a full years charge in the first financial year, despite owning the asset for just a few days. I dont think theres an error, but the application of FRS102 has changed for sure

In terms of depreciation of assets, FRS102 hasn't changed any of the principles of what was the old FRS15 under UK GAAP, so the application of it remains the same. All it says about when to apply depreciation is that it should commence from the point in time an asset is ready for its intended purpose and then be applied on a systematic basis over the useful life of the asset.

Under that, it wouldn't be unreasonable to charge a full year on a new asset that's been held for most of the year, but I'm struggling to find a valid argument for charging a full year on an asset that's only been held for a few days.

 

[DB1867]

In terms of depreciation of assets, FRS102 hasn't changed any of the principles of what was the old FRS15 under UK GAAP, so the application of it remains the same. All it says about when to apply depreciation is that it should commence from the point in time an asset is ready for its intended purpose and then be applied on a systematic basis over the useful life of the asset.

Under that, it wouldn't be unreasonable to charge a full year on a new asset that's been held for most of the year, but I'm struggling to find a valid argument for charging a full year on an asset that's only been held for a few days.

I agree in that if the policy is applied consistently, then the standard seems to allow the annual charge. The final question is really is this a prior year adjustment or just a change we can process in the current year? The amount isn't material and we're not audited so my preference is to record in year

 

[Lee Thomas]

Hi,

I've recently joined a company reporting under FRS102 for a YE Jun.

The depreciation has been calculated annually i.e. an asset bought on Jun 28th would have a full years depn recorded in the accounts for the YE Jun 18.

I would like to move to a monthly calculation basis, which in the above example would result in a single months depn being charged.

There is a difference between the 2 methods to record in the year the change is made and i was wondering how this should be reported. Do i have to adjust the prior year closing balances for example and add a disclosure note detailing the change?

The company isn't currently audited, but its heading that way shortly

Thanks

As the accounts for period are closed and assume the financial year ended as well, this cannot be done in your ERP System but adjustments in your statutory accounts. Alternatively the business may decide to leave the depreciation as is but a statement in the statutory accounts to that effect must be incorporated in the statement