ACCA Strategic Business Reporting (SBR) Practice Exam

What should happen to depreciation once an asset is classified as held for sale?

1. Depreciation should cease from the date of classification

2. Depreciation should continue until the asset is sold

3. Depreciation should increase at 10% annually

4. Depreciation is only applied to non-current assets

The correct answer is: Depreciation should cease from the date of classification

Once an asset is classified as held for sale, it is important to recognize that the asset is no longer being used in the operations of the business. Consequently, depreciation should cease from the date of classification. This aligns with the accounting standards that dictate that assets classified as held for sale should be measured at the lower of their carrying amount or fair value less costs to sell. Since the asset is intended for sale rather than for further use, there is no rationale for continuing to depreciate it. Continuing depreciation would conflict with the intent of the classification, as the asset is not contributing to revenue generation anymore, and valuation should focus solely on its potential sale value. Therefore, ceasing depreciation once the asset is classified as held for sale ensures that the financial statements accurately reflect its value and status at that point in time.