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n Professional Accountant - Residual value - a consideration for a depreciation policy - : accounting technical

Volume 2016, Issue 28
  • ISSN : 1680-7537

Abstract

The objective of selecting a depreciation policy is to enhance the quality and fairness of the financial statements - this means that the depreciation must be appropriate to ensure that the correct depreciation expenses are charged against profit, and the carrying amount of the asset fairly reflect the remaining economic benefits embedded in the asset. The question that needs to be addressed is: "Does depreciating the asset to a zero value represent fair presentation?" The residual value, also referred to as the salvage value, represents the amount that may be recovered through disposal at the end of the useful life of the asset - residual value represents an estimate of the selling price on disposal less the costs to sell. The residual value represents the cost of the asset that should not be depreciated and thus represents the future economic value after the asset has been utilised for its intended purpose - economic benefit is represented by the disposal value at the end of its useful life. The cost of the asset less the residual value (depreciable amount) is the amount that should be depreciated over the estimated useful life.

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/content/account/2016/28/EJC195432
2016-01-01
2019-11-19

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