Often fixed assets available at the enterprise are temporarily not used due to various circumstances, such as major repairs, improvements, and so on. How to deal with their depreciation during business interruption for companies keeping records in accordance with international standards?
In compliance with par. 52 of IAS 16, "the repair and maintenance of an asset does not provide for exemption from depreciation".
Conclusion 1
During repairs, even if the facility is decommissioned, depreciation is charged.
Under par. 55 IAS 16, an asset is depreciated when it becomes available for use, that is, when it is delivered to a location and brought to a condition in which it is can be exploited in a manner determined by management. It means that those who prepare reports under International Financial Reporting Standards (hereinafter – IFRS) begin to accrue depreciation without waiting for the actual date of commissioning of the entity.
Depreciation of an asset is terminated on one of two earlier dates: the date when the asset is classified as held for sale (or included in a liquidation group that is classified as held for sale) in accordance with IFRS 5, or the date on which the asset is derecognized.
Conclusion 2
Depreciation is not discontinued when the asset is not being used or is withdrawn from active use until the asset is fully depreciated (par. 55 IAS 16). However, according to the depreciation methods, the depreciation deductions can be zero if there is no production.
Under IAS, depreciation is charged both during repairs and improvements (completion, refurbishment, modernization, modifications) and during preservation, whether the object is being used or not. In due time, the controllers also agreed to this (ITA of the State Fiscal Service of Ukraine No. 3171/6/99-99-15-02-02-15/ІПК of June 17, 2018 and No. 496/6/99-99-15-02-02-15/ІПК of February 6, 2018). And the courts were in favor of depreciation of fixed assets by IFRS experts during repairs/improvements (decision of Kirovograd District Administrative Court dated August 30,2016 in case No. П/811/4187/14).
Conclusion 3
The tax experts believe that the period of overhaul, completion, refurbishment, modernization, modification is not recognized as useful life, and therefore depreciation, in their opinion, should not be charged at this time.
However, IAS 16 does not contain such information. On the contrary, depreciation is charged even when the object is not in use.
