Depreciation Query

OGrennan

Hi, wondering if anyone can help me on a query.
Our business acquired a new building in September 2012. This was to allow us to move into a bigger premises. Due to unforseen circumstances, we have had to put that project on hold. Our Financial Year End was March 2013 and I had depreciated the new building with 7 months depreciation charge. However the auditor has come back and said that because they building was not in use that i should not have charged the depreciation so now this has to go back onto the bottom line.I would have thought it would have been prudent to charge the depreciation.

dbran

Hi

No. The main purpose of depreciation is to spread the cost of the asset over the period in which the entity has derived benefit from it. So if it is not in use during the year there should not be a charge to depreciation in that year.

However one of the biggest audit issues as regards property value in the last few year for auditors particularly in the days of the property crash is the question of whether or not the property is actually overvalued to begin with. In this case a write down in its value may be required anyway. The treatment of the property write down may be a permanent or temperary in nature.

Hope this helps

dbran

pepp

As far as I know depreciation should not be charged on land or premises. If you feel the building is worth less than what you paid for it you should revalue the asset however bearing in mind that if you do it for this building you need to apply it to all of the assets in that class.

Miss_diagnosis

deprereciation is not charged on land but it is charged on premises. However the asset has to be in use to depreciate or to claim wear and tear allowances.

optimistic_

Miss_diagnosis wrote: »

deprereciation is not charged on land but it is charged on premises. However the asset has to be in use to depreciate or to claim wear and tear allowances.

Wear and Tear allowances wouldn't have been allowed for last year at all. The building must be in use at the start of the tax year in order to claim any capital allowances. If it's not in use now, it won't be allowed for capital allowances for 2013 either.

Ardeehey

+1 on that, premises must be in use to allow depreciation

thomlin

Hi Op,

Not disagreeing with anyone on the depreciation but is the building still empty or are you now renting it out or holding on to it in the hope of capital appreciation.

If so look at IAS 40 investment properties as you may have it classed as a fixed asset when it should be an investment asset so if you apply the fair value method it would only apply to the investment asset if this is the type of asset it is.

You could use the fair value for the fixed asset as well but you would have to do this with all of your assets of this type as advised already.

HTH