Depreciation Solution

Depreciation of fixed assets refers to the life of fixed assets, in accordance with the method of determining the corresponding system depreciable amount apportioned. Method of calculating the depreciation of the companies’ (Fonterra) property, plant and equipment use the straight-line method of depreciation. According to this method of calculating depreciation extraction, extraction of calculating depreciation in each year of use or month are equal, the amount of accumulated depreciation linear upward trend. The PPE is measured to assets at cost after deducting the net salvage value, amortized over the expected useful life. After the annual depreciation charge for the acquisition cost less residual value, divided by the expected useful life.

Using the method to calculate the average years of depreciation of fixed assets, although simple, but there are some limitations. For example, the fixed assets in different years of use provide different economic benefit, the fact that the average service life method without considering. As another example, the fixed assets in the event of different service life repair costs are not the same, the average life of law has not consider this factor.

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes the purchase consideration and those costs directly attributable to bringing the asset to the location and condition necessary for its intended use. Costs cease to be capitalised when substantially all the activities necessary to bring an asset to the location and condition for its intended use are complete. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Finance costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each financial year end. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount, and are recognised in the income statement.