Depreciation life of fixed assets, determination and change of salvage value (rate), accelerated depreciation, etc. (II)

In general, once the depreciation estimation policy for fixed assets is formulated, it usually does not change, and the accounting policy of the same enterprise for the same class of assets remains stable. How to consider the situation of changing the depreciation period mentioned above needs to be considered separately.

1. Changes that lack basis

In practice, changes in the depreciation period after the initial acquisition or construction and after use fall within the category of accounting estimates or error corrections. Artificially adjusting the depreciation period based on profit factor considerations without new changes at the physical or material entity level is an abuse of accounting estimates and an accounting error.

The above changes in depreciation period based on accounting profit considerations are often extended depreciation periods, and in addition, shortening depreciation periods is not necessarily reasonable, and it is necessary to distinguish between situations:

1. According to the information at that time, the service life of the asset was originally short, but the depreciation according to the longer age belonged to the previous error correction due to the company's own reasons, underutilization and consideration of the existing information, and now shortening the depreciation period;

2. New situations, such as buildings or equipment affected by some extreme weather, resulting in the shortening of the expected service life, which is a new situation, according to the change of accounting estimates, do not adjust the amount of previous depreciation, the future applicable method is adopted.

2. Changes with reasonable basis

The second point above also belongs to the category of reasonable change of accounting estimates, and the above discussion mainly focuses on the change of accounting depreciation period, mainly because the depreciation period is easy to cause controversy in practice, and it is also a means often taken by companies that need profits.

For the residual value (rate), in practice, a fixed percentage is often stipulated, often uniformly set at 3%-5%. Because the realization of this residual value is many years later, and the residual value rate is set relatively low, the amount is not large, and there is often no excessive controversy. But for some specific industries, there may be a big impact and need to be paid enough attention.

For example, heavy ships, because their structure is composed of a large amount of steel, steel often has market value, and the market value is very active, if according to the above simple and rough development of a salvage rate is very inappropriate, the residual value of such assets may be much higher than the salvage value estimated according to the above method. For such assets, the residual value is generally estimated according to the market value of the steel that makes up the ship.

According to Accounting Standard for Business Enterprises No. 4 - Fixed Assets, Chapter IV Subsequent Measurement Article 15: An enterprise shall reasonably determine the useful life and estimated net residual value of fixed assets according to the nature and use of fixed assets. Once the service life and estimated net residual value of a fixed asset are determined, they may not be changed arbitrarily. However, exceptions are made in accordance with the provisions of Article 19 of these Guidelines.

Article 19 An enterprise shall, at least at the end of each year, review the useful life, estimated net residual value and depreciation method of the fixed assets.

1. If there is a difference between the estimated number of service life and the original estimate, the service life of the fixed asset shall be adjusted.

2. If there is a discrepancy between the estimated net residual value and the original estimate, the estimated net residual value shall be adjusted.

3. Where there is a major change in the way in which the economic benefits related to fixed assets are expected to be realized, the depreciation method of fixed assets shall be changed.

Changes in the useful life of fixed assets, projected net residual value and depreciation method should be treated as changes in accounting estimates. Therefore, in general, in the case of a more stable environment, we are less likely to make estimated changes to fixed assets in general, but for assets such as heavy ships, as well as other assets with similar attributes, it is necessary to assess the estimated net residual value more strictly at the end of each accounting period, and the potential impact of the estimated change is much higher than that of general assets.