| All fixed assets are initially recorded at cost. Property, plant and equipment is used in the company's principal activity for the production and supply of goods or for administrative purposes and is stated in the balance sheet under the historic cost model. This model requires the assets to be stated at cost less amounts in respect of depreciation and less any accumulated impairment losses. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value (which is the expected amount that would currently be obtained from disposal of an asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life).
It is the company's policy not to depreciate freehold land and buildings which is a departure from the accounting standards. This is because the buildings are to be maintained at a high standard to ensure a long effective life so that in the view of the director the residual value is approximately the same as cost meaning that there is nothing to depreciate. Where any permanent diminution of property value occurs, a provision is made in the profit and loss account. The director's estimate of residual value is based on the price prevailing at the time of acquisition. |