[Opinion] Merely due to consolidation, adjustments should not be made to the method of depreciation in the CFS

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. Such allocation depends on the method of depreciation selected by the entity and should reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.

The selection of the depreciation method is a matter of judgement and the change in the method of depreciation is required to be disclosed as a change in estimates as per Ind AS 8. Also, as per the requirements of Ind AS 16, a change in the method of depreciation is allowed only when there is a change in the pattern of consumption.

While preparing consolidated financial statements, the group as a whole should be considered as a single economic entity but mere consolidation of subsidiary’s financial statements with those of the parent company would not ordinarily change the actual/expected usage or pattern of consumption of an asset and therefore, does not lead to any change in estimates. Therefore, merely on the basis of consolidation, adjustments should not be made in the method of depreciation in the CFS.

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