Under IFRS, how would you derecognize a replacement part? And how does this affect the total asset value?
For example:
Asset = Air conditioner for a mall
Major replacement part value = $2000
Old part being derecognized went in the trash
Straightline depreciation on the air conditioner, 10 years in out of 20 years total, residual value $0.
How do you derecognize that old part? And what does the carrying value of the Air Conditioner become?
I can think of two logical approaches. Please tell me what is right or wrong:
Idea#1: Old part is $0, so de-recognition does nothing. New part is $2000. Air conditioner is now carrying $2000 more now.
Idea #2: Value the old part at the fair value of the new component, less depreciation (so $2000 less $1000), so $1000. New part is $2000. So derecognize $2000 off of the asset, and $1000 off of the depreciation of the asset, and recognize $2000 back onto the asset for the new part.
I don't know what to do, by IFRS standards? Could there be a situation where the old part was a part of the asset, but the new part is recognized as a separate asset? Like, if you had a super computer with a power supply, and the whole thing is one asset... but 5 years down the line you replace the power supply, and the new one is significantly more expensive, serves the same purpose, but is so significant that it's now made its own asset instead?
This post was edited by Canadian_Man on Apr 19 2017 01:30am