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How to justify depreciation useful lives and RV

I am needing to justify useful lives and residual value for a freehold building

Land is not depreciated, but the purchase contract does not split the cost between the cost of the land and the cost of the building. The useful life of the building is likely to be long, so estimating it is going to be very difficult. The residual value at the end of the useful life is virtually impossible to estimate. Who knows how much it will be in say 50 years time. Commercial buildings tend to be different from each other, whereas residential buildings are somewhat similar. The building concerned is a commercial, freehold building, not held for investment purposes. So how do I calculate, and justify, the depreciation of a commercial building?


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23rd Jun 2018 18:36

David160 wrote:

So how do I calculate, and justify, the depreciation of a commercial building?

Obvious way would be to ask a property expert, eg, chartered surveyor working in the relevant field.

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25th Jun 2018 09:12

If you are reporting under FRS 102 you don't need to guess what the RV will be in 50 years time. The RV to use is what a building that is 50 years older than yours is currently worth. That may not make your life much easier but it does take one imponderable out of the equation.

For reference, the full FRS definition of RV is:

"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." (FRS 102 Glossary)

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