Currently drawing up draft account for new client. Previous accounts show cost of plant and machinery £100k. Accumulated Depreciation £90k NBV £10k.
After discussion with the director of the company it appears that the plant and machinery is quite long lifed (10 to 15 years) and as a result of its special nature now has a maket value - in its current condition - of £200,000 (evidenced by offers recently received by the director).
How is this dealt with under FRS 102 including deferred tax implications.
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Refer to the 17.15 sections of the FRS 102. The company could use the revaluation model rather than the cost model but that would apply to all items in that class of asset and revaluations would need to be done on a regular basis rather than as a one-off.
Alternatively it would be possible to stop depreciating them if the residual value is in excess of the book value. (17:19 + definition of residual value). The amounts sound fairly immaterial in any event.
May be simplest just to let nature follow its course on the existing assets and have a better policy for any new ones.
Do note, though, the definition of residual value: "The estimated amount that an entity would currently obtain from disposal of an asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life."
The value of plant and machinery at the end of its useful life is likely to be approximately zero
"The value of plant and machinery at the end of its useful life is likely to be approximately zero"
Why should we preume that ? surely this wording exists because the value could be materially higher than nil?
I should have spelt out *owned* plant. Useful life is defined as "The period over which an asset is expected to be available for use by an entity", with further guidance in para 17.21.
For leased assets that period is clearly bounded by the length of the lease, but for owned assets the constraint is effectively until it's not worth maintaining/ is obsolete/ is scrapped. And all those give negligible value in most cases.
I would give the counter example of a hire car company, assuming that they purchase the cars, where the useful life may be 2 or 3 years for that entity and then they are disposed of. Clearly they will have a greater than negligible residual value at that point.
Whilst frequently that may be the case, there are nevertheless plenty of situations where that does not apply.
I certainly have one client where we can no longer justify depreciating the assets they operate as the residual values are climbing so fast that they far exceed cost. Mind you there is an element of grandfather's axe about them.
There are times where AWeb's threading of posts gives a very distorted flow to discussions!