In December 2012, the IASB published for comment the Exposure Draft ED/2012/5 Clarification of Acceptable Methods of Depreciation and Amortisation (Proposed amendments to IAS 16 and IAS 38). The comment period ended on 2 April 2013.
At its October 2013 meeting the IASB discussed the recommendations made by the members of the Interpretations Committee and asked the staff to make revisions to the proposed amendments.
At the November 2013 meeting the IASB discussed the revised proposed amendments and decided that it should proceed with them, subject to some wording changes. These proposed amendments to IAS 16 and IAS 38 would:
- state that revenue is an inappropriate basis for measuring depreciation expense, because the revenue generated by an activity that includes the use of an asset generally reflects factors other than merely the consumption of the asset, including other inputs and processes, selling activities and changes in sales volumes and prices;
- add a rebuttable presumption to IAS 38 that revenue is presumed to be an inappropriate basis for measuring depreciation expense, unless either it can be demonstrated that there is a strong correlation between revenue and the consumption of the asset or there is an unusual circumstance in which the intangible right is expressed as a measure of revenue;
- provide additional guidance on choosing an amortisation method by reference to the limiting factor(s) that is (are) inherent in the intangible asset and that determine the limit of the entity’s use of the intangible asset; and
- state that depreciation expense and amortisation expense are estimates of the expected pattern of consumption of the future economic benefits embodied in the asset.
The IASB also tentatively decided to clarify that expected reductions in the selling price of goods or services could indicate the existence of commercial obsolescence, which in turn could reflect a reduction in the economic benefits remaining in the asset.
All IASB members agreed.
The staff will bring a paper to the next meeting setting out the due process steps that the IASB has taken to date before issuing the final amendments to IAS 16 and IAS 38.
Read the November IASB Update.