Q. Charging of depreciation on retired asset held as standby

Question

I have a query for an auditee company covered under IndAS. The Company has an item under PPE, which was being used earlier as part of main machinery. In an earlier year, the said part was damaged (though not fully) and hence, it was replaced with a new part. Cost and corresponding depreciation of the old part was removed from the ‘PPE block’ and shown as ‘ASSET NOT IN USE’. The said old part has not been disposed-off but kept as standby (as it can still operate at, say, 70% efficiency) and also since any new replacement will cost in crores and also involve considerable time.

The Company is not charging depreciation on the old part (now kept as standby).

 My query is whether depreciation should be charged on the old part? As per my interpretation of IndAS (para 55) depreciation has to be charged even on assets which have been retired (or derecognised?).

Answer 1

Yes, your view is correct, depreciation should be charged on the same too.