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Capitalization of depreciation (including depreciation accrued on fixed assets)


We are constructing a plant, we don’t have any operating activity, all the funds for construction we get from the mother company. We capitalize all the expenses including depreciation accrued on the fixed assets in exploitation. This means that depreciation of the fixed assets used by us now participates in forming of the initial cost of qualifying assets. I can’t find any information if it is possible to capitalize depreciation according to ifrs. If you know the answer, please, help me (with reference to the standards). Thank you in advance.

asked Apr 11 in General IFRS Discussion by Maria Level 1 Member (1,100 points)

1 Answer

0 votes
Under IFRS 16 Property Plant and Equipment you can't charge depreciation and capitalize.

For your following element of cost should be capitalized under IFRS 16

The cost of an item of property. plant and equipment comprise:
 
- Its purchase price, import ditties and non-refundable purchase taxes after deducting trade
  discounts and rebates.  
- Any costs necessary to bring the asset into current location and condition intended by
  management.
- The initial estimate of the costs of dismantling and removing the item and restoring the site.

Examples of directly attributable costs are:

- Costs of employee benefits arising directly from the construction or acquisition of an item al
  property. plant and equipment.
 -Costs of site preparation
- Initial delivery and handling charges.
- Installation and assembly cost.
- Cost of testing whether the asset is functioning properly, after deducting the net proceeds from
  selling any items produced (such as samples produced when testing equipment); and
- Professional fees.


Further, You can't charge depreciation until:

1)The plant is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating, in the manner intended by management.

This is required by IFRS 16.
answered Apr 11 by MHAGIG Level 2 Member (4,250 points)
Thank you for the answer. It seems my doubts are still not solved. Probably, the initial data is not enough to understand why I’m confused. The plant is a complex of facilities and they can be used separately. And now some of the facilities are used and depreciated (as it is required by ifrs 16). And the amounts of depreciation related to the fixed assets being used are charged to the construction in progress and in the future will form the initial cost of new facilities. The
only activity of the entity is the construction of the plant. And as I said earlier all the expenses incurred during the construction are being capitalized. But I feel it’s not correct in relation of the depreciation.
Shall the depreciation of the fixed assets we are using right now (before start of the plant)  directly result in the year profit/loss?

Under IFRS 16
Yes Depreciation is directly Charged to profit/loss Account.

Depreciation is systematic Allocation of Asset over its Useful life.

Let say in the year 2000 you buy a plant for $100,000 that has ten years useful life.

Now Depreciation should be charged as 100000/10 = 10000 every year form 2000 to 2009.


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