n Professional Accountant - Setting an accounting policy on depreciation - policies

Volume 2015, Issue 25
  • ISSN : 1680-7537


On reviewing the financial statements of many capital-intensive businesses, especially SMEs, one often notices that the carrying amount of Property, Plant & Equipment is inexplicably low in comparison to the revenue and profit generated. In many of these situations, the reason can be attributed to the fact that a large proportion of the items of Property, Plant & Equipment are fully depreciated, but are still actively used in operations to generate revenue and profit. The implication of this is that an asset with a zero value has the potential to generate future economic benefits. Questions then arise as to whether the financial statements are a true and fair reflection of the business activities.

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