One asset can be consumed in different ways
IAS 16 requires systematic allocation of depreciable amount over useful life and links the method to the pattern of benefit consumption. It lists straight-line, diminishing balance and units-of-production methods. Source: **curr-stat-ias16-text**, paragraphs 50, 60–62. These are not equally suitable for every asset; selection requires substantive support.
Straight line and production resource
A fictional installation costs 600, estimated residual value is 60 and useful life is six years. Depreciable amount is 600 − 60 = 540. Straight-line annual depreciation is 90, assuming a full year ready for use and no other changes. Taxes are excluded.
Instead use an expected total output of 90,000 units justified by the facts. Consumption cost per unit is 0.006. Output of 10,000 gives depreciation 60; output of 20,000 gives 120. Different annual expenses reflect different consumption of the stated production resource, not different cash payments for the installation.
Diminishing balance is not arbitrary acceleration
For a separate illustration, use cost 600 and a conditional annual rate of 30% applied to the balance. Year one allocation is 180 and balance 420; year two allocation is 126. This shows a declining schedule but does not establish a policy for the full life: reconcile residual value, end of use and the applicable model basis.
The comparison shows why equal cash investment can produce different current expense. Lower depreciation does not automatically mean more efficient production; method, asset age or useful life may differ. Business comparison needs explanations, not automatic exclusion of depreciation from every measure.
Ready for use and idle time
IAS 16 links commencement to readiness for intended use. Idle time alone does not automatically stop depreciation; under a usage method, no production may produce zero expense. Source: **curr-stat-ias16-text**, paragraph 55. No sales and no depreciation are therefore not universally linked.
Do not start allocation only at first revenue without checking readiness. Nor treat a repair as automatically stopping accounting wear. Find commissioning date, method and idle conditions; if unavailable, identify the question rather than making a confident adjustment.
A revision is not necessarily an error correction
IAS 16 requires useful life and residual value review at least at each financial year-end; changes when expectations differ are changes in estimate. Sources: **curr-stat-ias16-text**, paragraph 51; **curr-stat-ias8**, About. This differs from reliable information that was available but omitted in the past. New facts and their date matter.
Do not use revenue as an automatic measure of consumption: IAS 16 specifically identifies a revenue-based method as inappropriate. Source: **curr-stat-ias16-text**, 62A. A product-price change can increase revenue without comparable physical wear.
What depreciation cannot show
A schedule does not show a machine’s market price or exact future replacement cost, and it is not a tax instruction. A shorter accounting life cannot be called a way to reduce real tax without checking the rules. See [inventory and depreciation](/guides/inventory-and-depreciation/), [property, plant and equipment](/glossary/osnovnye-sredstva/) and [adjustments](/guides/financial-statement-adjustments/).
Compare the method with actual use
For equipment idle most of the year, ask whether calendar ageing remains significant without output. For intensively used equipment, establish how physical load relates to production. Industry labels do not answer this; similar assets may operate differently. External analysts often lack technical evidence, so a claim that one method is the only correct one should be limited.
A method revision cannot be assessed only from profit rising or falling. A changed use pattern can support either direction. Compare explanation, date of new information and disclosed effect. If the basis is not visible, flag sensitivity rather than attributing profit management without evidence.
Separate useful life from formal age. Maintenance, technology and product requirements can change expectations, but the accounting entry does not confirm technical readiness. A full conclusion needs appropriate specialists.
Two write-off schedules: accounting and tax
Accounting depreciation describes resource consumption; tax deduction is determined by applicable tax rules separately. Faster tax deduction may move tax payment through time without changing accounting useful life. Tax base is the amount deductible for tax when carrying amount is recovered. Source: **ca-ias12-text**, 7, 17(b). None of the schedules below is declared lawful under current legislation.
Separate model: equipment costs 480, residual value is zero, accounting life is four years and annual accounting depreciation is 120. Tax schedule is given by the exercise: 240, 120, 60 and 60. Before depreciation, annual profit is 300; conditional rate is 20%; payment equals current tax, all differences reverse and there are no other events.
| Year | Closing carrying amount | Closing tax base | Difference | Deferred liability | Current tax | Change in deferred liability | Total tax expense | | --- | --- | --- | --- | --- | --- | --- | --- | | 1 | 360 | 240 | 120 | 24 | 12 | +24 | 36 | | 2 | 240 | 120 | 120 | 24 | 36 | 0 | 36 | | 3 | 120 | 60 | 60 | 12 | 48 | −12 | 36 | | 4 | 0 | 0 | 0 | 0 | 48 | −12 | 36 |
In year one current tax is (300 − 240) × 20% = 12, while accounting tax expense is (300 − 120) × 20% = 36. Deferred expense of 24 explains the difference. In years three and four the prior effect reverses. Over four years current tax and total tax expense both equal 144. This is timing deferral under the assumptions, not tax disappearance. If law disallows some cost, the difference cannot automatically be called temporary; rate or recovery changes require a new calculation.
Compare lives without rewriting history
Two fictional carriers bought identical resources for 900. One has a supported life of ten years and residual value 100: annual expense 80. The other has a 15-year life and residual value 150: annual expense 50. The 30 difference in pre-tax profit comes from assumptions, not extra passengers or cash. For a common-base comparison, increase the second expense by 30 while keeping its reported result beside it. This analytical adjustment does not prove the first life is correct and is not error correction.
First compare operating conditions, maintenance, technical limits and information available to the companies. Otherwise the same aircraft model creates false comparability. The exercise does not support claims about Delta or Pan Am policy, results or intent in any historical year.