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Depreciation


New business decision this year to replace the current IT hardware next year. It happens that the current IT hardware though quite new doesnt meet the business needs. The old hardware has another 12 months left of depreciation. Could we impair it this year?  What are pros and cons accordingly to the standard?

asked Nov 5 in General IFRS Discussion by Josvill Level 1 Member (1,100 points)

1 Answer

0 votes
According to IAS 36, an entity is required to carry out impairment test at each reporting date in order to assess whether there is an indication that any assets need to be impaired. IAS 36 has a list of impairment indicators some indicator are internal and some indicators are external, in your case external indicator is negative change in technology and internal source of indicator obsolescence, assets use full life, depreciation method and useful life may be reviewed and adjusted.

Therefore your IT hardware is likely impacted by negative change in technology so it should be impaired. As for as pros and cons concerns not impairing will result in over statement in fixed assets and may not present true and fair view of your financial statements if amount is material. And charge of impairment will also result in decline in profit for the year.
answered Nov 5 by Maher Ali Level 2 Member (4,360 points)


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