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depreciable amount is the cost of an asset When charging depreciation on an asset,
or other amount substituted for cost less each part of these items is charged separately
its residual or scrap value. For example, if provided that it has a significant cost in
the machinery cost is TZS 78,000,000 and relation to the total cost of the items. The
its residual/scrap value is TZS 6,000,000, allocation of depreciation on an asset will
then the depreciable cost is TZS 72,000,000 continue as long as the asset is in use. It
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(that is 78,000,000-6,000,000). does not cease even if the asset becomes
Determination of depreciation will start idle or is retired from active use unless
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when the assets is made available for the asset is fully depreciated. Recognition
use that is in the location and condition of depreciation continues even when the
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necessary to be used/operated in the fair value of the asset exceeds it carrying
manner intended by management. Once amount, provided that the residual value
the depreciable amount is established, it does not exceed its carrying value. Similarly,
has to be allocated on a systematic basis repair and maintenance of an asset do not
over its useful life. Along with this, the negate the need to depreciate it. However,
residual value and the useful life of an asset the depreciation charge can be zero when an
shall be reviewed at least at each financial organisation charges depreciation based on
year-end, and if expectations differ from the number of units produced, particularly
previous estimates, the change(s) shall be when there is no production.
accounted for as a change in an accounting
estimate. By definition, the useful life of If it happens the residual value of an asset
an asset is the period over which an asset increases to an amount equal to or greater
is expected to be available for use by an than the asset’s carrying amount, the asset’s
entity or the number of production or similar depreciation charge is zero till when its
units expected to be obtained from the asset residual value subsequently decreases to an
by an entity. Based on this, the useful life amount less than asset’s carrying amount.
can be considered either in terms of the
number of years or in terms of the number Depreciation charge can cease, but only
of units expected to be produced by the when an asset is withdrawn from ordinary
asset. On the contrary, the residual value usage and classified differently (held for
of an asset is the estimated amount that an sale). It ceases at the date that the asset
entity would currently obtain from disposal is classified as held for sale (or included
of the asset, after deducting the estimated in a disposal group that is classified as
costs of disposal, when the asset is at the held for sale) and the date that the asset
age and in the condition expected at the end is derecognised, that is removed from the
of its useful life. entity’s statement of financial position.
Student’s Book Form Five
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