Question

XM Radio was depreciating its satellites over 20 years (total cost of $20 million), for each of five satellites, useful life is only seven years due to the intensity of the sun rays. With reference to the scenario, answer the following questions:

What promulgated accounting standards should be followed? Provide your rationale.

How and when should this discovery be recorded in the financial statements of the company?

Answer 1

The applicable accounting standard is "AS 10 Property Plant and Eqipment', AS 26 Intangible Assets, and also Guidance Note on for Depreciation in companies Schedule II to the Companies Act, 2013.

Depreciation is define as the systematic allocation of depreciable amount of an assets over its useful life.

Depreciation should not commence until the asset is in a condition and location necessary to provide services or other benefits of ownership, which indicates that depreciation costs should be recognized over the expected useful life of the asset in a systematic and rational manner in the financial statement of the company. For constructed assets, benefits of ownership are not realized until the asset is ready for its intended use. The depreciable life of the satellite cannot be determined until the satellite has been placed in service.