There is a difference between Canadian GAAP and IFRS as to when depreciation starts. Under Canadian GAAP, depreciation of an asset begins when the asset is put into use, whereas under IFRS, depreciation begins when the asset is available for use.
With regards to depreciation of spare parts, IFRS, like Canadian GAAP, specifies that a spare part is only available for use when it is actually installed. If you cannot use the spare part on its own, then depreciation does not begin until the spare part is actually been installed.
An example of the difference between available for use and put into use is when a company has back up machinery to support other machines, that is only used in the event of breakdown of the primary machines. Under Canadian GAAP, because the backup machine is not in use, no depreciation is required. However, under IFRS, even though the backup machine is not use, it is in fact available for use, and therefore is depreciated, whether it is used or not.
I hope this helps. This is one of a series of blogs that is meant to convey information relating to Canada’s transition from Canadian GAAP to IFRS.
For further information, please refer to the ongoing series of IFRS blogs on the GFS Consulting web-site and please remember to contact your CGA or other accounting professional for further guidance.
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Tags: Canadian GAAP, Depreciation, IFRS, PP&E
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