Depreciation: depreciation method (paras. BC33-BC33H)
BC33 The Board considered how an entity should account for a change in a depreciation method. The Board concluded that a change in a depreciation method is a change in the technique used to apply the entity’s accounting policy to recognise depreciation as an asset’s future economic benefits are consumed. Therefore, it is a change in an accounting estimate.
BC33A The IASB decided to amend IAS 16 to address the concerns regarding the use of a revenue-based method for depreciating an asset. The IASB’s decision was in response to a request to clarify the meaning of the term ‘consumption of the expected future economic benefits embodied in the asset’ when determining the appropriate amortisation method for intangible assets of service concession arrangements (SCA) that are within the scope of IFRIC 12 Service Concession Arrangements. The issue raised is related to the application of paragraphs 97–98 of IAS 38 Intangible Assets although the IASB decided to address the issue broadly, rather than limit it only to intangible assets arising in an SCA.
BC33B The IASB observed that a revenue-based depreciation method is one that allocates an asset’s depreciable amount based on revenues generated in an accounting period as a proportion of the total revenues expected to be generated over the asset’s useful economic life. The total revenue amount is affected by the interaction between units (ie quantity) and price and takes into account any expected changes in price.