IASB clarifies appropriate methods of depreciation, amortization

BY KEN TYSIAC

New amendments to two international accounting standards published Monday clarify acceptable methods of depreciation and amortization.

To clarify appropriate methods, the International Accounting Standards Board (IASB) changed IAS 16, Property, Plant and Equipment, and IAS 38, Intangible Assets. Both standards explain that the expected pattern of consumption of an asset’s future economic benefits is the principle for the basis of depreciation.

The IASB clarified that it is not appropriate to use revenue-based methods to calculate an asset’s depreciation. This is because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset.

Revenue also is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. In certain limited circumstances, though, this presumption can be rebutted, according to the new guidance.

More information is available on the IFRS website.

The amendments take effect for annual periods beginning on or after Jan. 1, 2016, and early application is permitted.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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