Hey guys,
When a company chooses to use revaluation model, are there still any annual depreciations done? Or there isn’t since depreciations are related to the cost model?
Thanks
Annual depreciation is still charged.
I would say, Depreciation is not just linked to cost it is linked to the usage of the asset.
Lets say at Y0 you purchased a machine for $100000 with a useful life of 10 years. You used SLM to depreciate. Year 1 book value = 900000.
Now suppose in year 2 end you decide to use fair value measurement for reporting the asset and the FV at the year end is 950000. note that the FV is calculated at the year end after using the asset for the year, thereby in year you shall charge depreciation at 900000/9=100000. Therefore the Book value is 800000, which then is restated to 950000 recognising a fair value measurement gain of 150000.
From year 3 onwards, you shall depreciate the asset as 950000/8years = 118750.
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