How to Recognize Depreciation on PPE, if there is no Manufacturing Activity?

National Financial Reporting Authority (NFRA) raised few observations vide Report No.NF-20011/24/2021, Financial Reporting Quality Review Report (FRQRR) that contains instances of non-compliances or errors in Ind AS financial statements.

Here, we would look into the NFRA observations wherein the sample company did not provide the depreciation on plant and machinery on the grounds that no manufacturing activity was carried out during the financial year.

However, Ind AS 16, Property, Plant and Equipment states that “Depreciation of an asset begins when it is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.”

Also, it includes technical and commercial obsolescence as one of the factors to be considered in estimating the useful life of an asset.

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