Concepts guide - Depreciation

[David Harrison]

I was reading chapter 11 of the concepts guide regarding depreciation
and noticed a significant error.

A question, though, before I get to the error.  For whom is the
concept guide written?  If it is for someone who is tracking there
home expenses and are concerned about recording the value of their
house, car, etc.  then the chapter makes sense.  If it is aimed at the
small business, then the reason behind depreciation is incorrect.  If
it's aimed at both, then we need to rework the concept guide and
separate the issues.

Here's the issue.  Depreciation is not the recording of the change in
value of an asset, it is the matching of the expense of purchasing the
asset with the revenue that that asset will produce.  For example, if
an asset will produce income for 5 years on an even basis every year,
then a straight line depreciation would be appropriate.  Or, if an
asset with produce x number of dollars per man hour used, then it
should be depreciated based on the number of man hours it is used over
the estimated number of man hours it will be used over it's entire
life.

Although we may in the future, for capital assets are not written up
if the value increases.  Nor would the carrying value (cost less
depreciation) be written down if the market value is less than the
carrying value. Note that I'm talking about capital assets, not
investments, inventory, or like instruments that are recorded at the
lower of cost or market value.  Nor am I talking about intangible
assets, like trademarks, patents, goodwill - that's a whole other
topic.

Anyway, I started working on rewriting the chapter, but I stopped
because I wanted to clarity who the audience was before I wasted all
my time for nothing! ;)

Thanks for your thoughts

Dave

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