Accounting – FAQ December 2011 (Part 1)

How to depreciate tangible assets directly or indirectly affected by the floods?

Key words: Accounting, Thailand, Flood, Tangible Assets, Depreciation, Useful Life

Non cessation of depreciation

Depreciation does not cease when the asset becomes idle or is retired from active use (e.g. moving assets away from flood affected areas), unless the asset is fully depreciated. Depreciation of an asset only ceases at the earlier of the date that:

the asset is classified as held for sale -i.e. it will be recovered through a sale transaction rather than continuing use, and
the date that the asset is derecognized- on disposal (sale, finance lease, donation...) or when no future economic benefits are expected from its use.

Change in depreciation method

If the assets remain unused for a significant period of time, depreciation method may be changed to reflect the new pattern of consumption of benefits embodied in the assets. Notably the unit of production method allows to apportion the cost of the assets over their productive life measured in terms of units produced or machine hours utilised. Under this method, the depreciation charge will be nil whilst there is no production.

This change in accounting estimate will be recognised prospectively by including it into profit or loss in 2011 and future periods. Specific disclosure is required if the change has significant impact on the financial statements.

Change in useful life of the fixed assets

The current flood crisis may result in a decrease in the estimated useful life of the entity’s assets, even if the assets are not determined to be impaired. This change in accounting estimate will result in the undepreciated cost to be written off to the income statement over the revised remaining useful of the assets.

Specific disclosure is also required if the change has significant impact on the financial statements.