A company is in the business of manufacturing products . During the current financial year, the company shut down the factory for a period of 2 months. Whether the company should provide for depreciation on plant and machinery during the shutdown period ?
As defined in para 3.1 of AS 6 “Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes.
Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset.
Depreciation includes amortisation of assets whose useful life is predetermined”.
Conclusion :Following the rationale of depreciation as explained in the definition above, the company should depreciate plant and machinery during the shutdown period because there is a loss due to effluxion of time.