Depreciation - Residual Value

Residual value is the salvage value of an asset. That is, it represents the amount of value that the owner of an asset can expect to eventually obtain when the asset is dispositioned. The key issue with the residual value concept is how to estimate the eventual amount that an owner will obtain from an asset as of a future date. There are several ways to do this, as noted below:

No residual value. The most common option for lower-value assets is to conduct no residual value calculation at all; instead, assets are assumed to have no residual value at their end-of-use dates. Many accountants prefer this approach, since it simplifies the subsequent calculation of depreciation. This is a particularly efficient approach when the amount of any likely residual value falls below a predetermined threshold level. However, the resulting amount of depreciation recognized will be higher than would have been the case if a residual value had been used.

firstly the company should have to check accounting policy of depreciation, the co. should have to calculate depreciation with residual value calculation retrospectively and treatment should be given in closing f.y. accordingly. the effect of the same should be given in deferred tax calculation also.

mandatory deduct residual value at cost of assets at 5% maximum

Dear all,

Same problem in the company where i work. Residual value has not been deducted from the cost for the past three financial years.

What is the remedy?

Regards,

Geetha

Hi, you have to make calculation from 01.04.2014, taking 01.04.2014 asset value as original value and minimum 5% value of assets will be deemed as residual value.

Impact of higher depreciation claimed in earlier years will have to show as exceptional item in current year financial.

Hi Pankaj,

You mean the excess depreciation be shown in P&L account of the current year as exceptional income ?

Regards,

Geetha

 

Yeah, and you have to calculate DTA/DTL accordingly.