My client, a Solar farm CIC, is depreciating the array over 25 years (the term of the lease of the land) straight line to nil. The early years are disproportionately laden with the interest burden on the borrowings (which are paid off by year 17) & by year 4 there will be a negative balance sheet. Would it be OK to suggest a tailored depreciation policy of 8 years at 2%, 9 years at 4%, 8 years at 6% to roughly match the 25 year profit and cashflow forecasts?
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Accounts wise you need to consider under which FRS you are reporting, I must admit I would be hard pressed to justify why such a depreciation policy was appropriate under say FRS102., 17.22
" An entity shall select a depreciation method that reflects the pattern in which it expects to consume the asset’s future economic benefits. The possible depreciation methods include the straight-line method, the diminishing balance method and a method based
on usage such as the units of production method"
True and Fair springs to mind, not profit smoothed and convenient
Your key is surely evaluating an approach that measures use over time/output over time (Textbook examples re Mines/Planes etc), the catch then may be that actually the greater output will likely be in the earlier years; not really what you want as you wish to skew your depreciation to the later years.
I hate to say it but surely old SSAP2 would be spinning in its grave, it is hardly prudent.
A little late to the party, but... I once worked for a company that did DD for Solar SPVs, mostly working on behalf of secondary buyers or refinancing, and I wouldn't have been surprised for even a second if I'd seen something like this.
As DJKL says, alternative depreciation methods would front-load the depreciation. I'd suggest sticking with straight line and trying to ignore the big negative.
If the depreciation curve is genuinely the opposite of your typical asset in that it all occurs at the end, and you're that bothered, then (depending on what, if anything, else is in the relevant asset class) aren't you better looking at revaluations rather than trying to fiddle the depreciation calculations?