Analysis of Depreciation Method Changes under IAS 16/AASB 116

This report examines the application of IAS 16 and AASB 116 concerning depreciation methods, focusing on a case study involving Marion's actions. The analysis begins by assessing whether Marion's decisions aligned with the standards, particularly regarding measurements after asset recognition and the flexibility to adjust depreciation techniques. It highlights instances where Marion complied with IAS 16, such as reviewing depreciation methods annually and changing methods to reflect expected future benefits. Conversely, the report critiques Marion's use of the sum-of-year's digit technique, which accelerated depreciation, and her failure to disclose changes in depreciation methods, potentially violating the revaluation model. The report uses references to support the analysis of depreciation methods and their impact on financial reporting.

C O U R S E
P R O F E S S O R
C I T Y
D AT E
CHANGING
DEPRECIATION METHODS

Introduction
 IAS 16 and AASB 116 usually handles plant,
property as well as equipment revaluation,
 It also enhance recognition and give some
guiding standards that should be followed by
an entity while making some disclosures
linked with the assets.
 In this scenario, some of Marion’s actions
were in line with the AIS 16/AASB 116 whilst
others were contrary (Del Giudice,
Manganelli & De Paola 2016).

Whether Marion’s Actions were in line with IAS 16/AASB
116 Requirements?
 To start with, Marion’s actions were in line with paragraphs 29
to 66 of the AIS 16/AASB 116 which are said to deal with
measurements after asset recognition.
 Such is action is evident in Marion case where Marion decided
to make some variations to the depreciation technique used by
this firm.
 This was the case since Marion ensured that the depreciation
technique is adjusted.
 Besides, Marion is said to have complied with IAS 16
requirements as she changed depreciation technique which was
being utilized in reflecting the patterns of future expected
benefits within the entity.
 Similar section calls the entity to make some reviews of residual
values of a particular asset, after revaluation every year
(Stunguriene & Christauskas 2014).

CONT”
 Marion’s act of changing the depreciation technique did stick
to IAS 16/AASB 116 requests.
 This is based on the fact that the IAS 16 recommends review of
the depreciation methods at least every year.
 Basically, it is evident that Marion’s action was in line with
requirements of the IAS 16 and the AASB 116 since the clause
indicates that depreciable quantity has to be allotted on
regular basis over specific commodity or property’s useful life
(Vladu & Cuzdriorean 2013).
 This implies that it has to be adjusted on yearly basis.
 Additionally, given that residual value of particular assets
needs to be reviewed every financial year, in case projections
differ from past projections, there is need to review
depreciation technique every year.

Cont”
 The depreciation technique has to be changed
prospectively as variation in estimate under the IAS
16.61
 Projected forthcoming decline in the selling prices has to
be a bit revealing of the advanced rate of the ingestion of
forthcoming benefits which is exemplified in the assets.
 Further, the actions are in line with the AIS 16 since
according to the AIS 16 and AASB 116, depreciation
methods is usually changed to the profit and loss
statement which was the case in this scenario.
 Marion made adjustment to the depreciation method
under the profit and loss.

Cont”
 Conversely, Marion action of applying sum-of-year’s digit
technique that was utilized for accelerating recognition of
depreciation was not in line with the IAS requirements.
 This is because the accelerated depreciation could
decrease taxable income, deferring income tax payments
should the profit decrease taxable income of the company
 Hence, Marion should have measured the non-current
assets appropriately.
 In this scenario, Marion failed to disclose variation in
depreciation technique in the company financial notes
while preparing the financial statements.
 Such shows that Marion did not carry revaluation under
revaluation model recommended in IAS 16/AASB 116.

References
Del Giudice, V, Manganelli, B & De Paola, P 2016, Depreciation
Methods for Firm’s Assets. In International Conference on
Computational Science and Its Applications (pp. 214-227).
Springer International Publishing.
Patelli, L & Pedrini, M 2014, ‘Is the optimism in CEO’s letters to
shareholders sincere? Impression management versus
communicative action during the economic crisis,’ Journal of
Business Ethics, 124(1), pp.19-34.
Stunguriene, S & Christauskas, C 2014, ‘Benefits of Applying
Different Depreciation Methods of Long-term Tangible Assets in
a Company,’ Social Sciences, 82(4), pp.38-47.
Vladu, AB & Cuzdriorean, D 2013, ‘Creative accounting,
measurement and behavior,’ Annales Universitatis Apulensis:
Series Oeconomica, 15(1), p.107.