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IAS 16/IAS 38 — Clarification of acceptable methods of depreciation and amortisation

Date recorded:

The project manager introduced the IASB to the Agenda Papers and recommended finalisation of the project.

She pointed out that 98 comment letters had been received and that they expressed mixed views. Nonetheless, the majority of the IFRS IC members have recommended proceeding with the finalisation of the project.

One Board member expressed support for the recommendation of the Interpretations Committee however had trouble understanding if revenue can still act as a proxy in a consumption-based depreciation method as the staff has deleted paragraphs from the Basis for Conclusions which stated that there were limited circumstances when revenue could be used (being when the use of a revenue-based method gives the same result as the use of a units of production method).

The project manager replied that this part of the Basis for Conclusions could lead to confusion and was therefore deleted.

Another Board member disagreed with the project manager and thought that the reference to revenue-based depreciation in the Basis for Conclusions was extremely helpful. He disagreed strongly with the deletion and therefore with the overall recommendation to proceed.

There was a lively discussion around this topic. Several Board members agreed with this view and expressed concerns what it would mean in practice that revenue cannot be used as a proxy for consumption any longer. This could especially be problematic for intangible assets.

One Board member disagreed with deleting paragraph 62B of the Exposure Draft as the deletion is not understandable. He understands that the revenue-based method was deleted because price changes are no indication for consumption. Paragraph 62B however made clear that an expected future reduction in unit selling price could be an indication of the diminution of the future economic benefits of the asset as a result of technical or commercial obsolescence. Therefore, it should not be deleted as this could be perceived as if the IASB does not allow using an expected future reduction in unit selling price to estimate the useful life of an asset.

Paragraph 62B of the Exposure Draft is reproduced below:

When applying the diminishing balance method, information about technical or commercial obsolescence of the product or service output is relevant for estimating both the pattern of consumption of future economic benefits and the useful life of the asset. An expected future reduction in unit selling price of the product or service output of the asset could be an indication of the diminution of the future economic benefits of the asset as a result of technical or commercial obsolescence.

The project manager replied that they wanted to emphasise the principle instead of providing detailed guidance.

When taking a vote on the staff proposal to proceed with the finalisation, there were only 6 Board members in favour and 9 disagreed.

The implementation director therefore recommended amending the wording and then discuss again at the next Board meeting.

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