Component approach to depreciation versus provision for repairs

Abstract

This article aims to describe the relationship between the introduction of component depreciation of fixed assets in the Czech accounting legislation and the creation of provisions for repairs of tangible assets. The current practice of making provision for repairs eliminated the fixed assets of different lifetime components of fixed assets. Component depreciation takes lifetime of different components into account, but on the other hand a tax disadvantages creation of tax provisions for repairs. Possible methods of accounting and tax depreciation of fixed assets and provisions for adjustments are explained by concrete examples. The authors also warn of improper practices in the Czech legislation on the first use of component depreciation for fixed assets already depreciated.