Most of the assets in a business facility depreciate over time; therefore, depreciation must be accounted for in financial statements according to the Australian taxation laws. However, most businesses are confused about the artwork that is purchased to decorate office space. The question that is always posed is whether artwork depreciates and how to treat the creative works in the books of accounts. A general answer to this question is that artwork is a broad category with different aspects. The best approach, therefore, is to treat each artwork individually, and this is only possible if you group artwork according to classes. This article highlights the different classes of artwork and how depreciation applies to each category.
The class of artwork represents art pieces that are held for the sole purpose of capital appreciation. Art pieces in this class might include art collections such as paintings and sculptures acquired through auctions or other means with the sole objective of storing them for wealth. In most cases, first-class artwork pieces have cultural value, historical value or both. Unfortunately, there are no guidelines on how to treat first-class artwork as far as depreciation is concerned because it doesn't fall into the property plant and equipment category. However, according to accounting policies, a business can develop and apply an accounting policy to account for first-class artwork. Therefore, you can use your discretion to come up with a way to accommodate first-class artwork into your accounting.
The next class of artwork is the office artwork that includes pieces that are not attached to the walls or equipment of a business establishment. Unlike first-class artwork that is held for wealth generation, office artwork is maintained primarily for decorative purposes. However, it does not mean that you cannot sell your office artwork if you want to. Since you can sell office artwork at any time, it is right to state that the artwork has an indefinite useful life. Notably, you are allowed not to depreciate the piece if its residual value is equal to or higher than the cost of acquisition. Therefore, if you buy an expensive sculpture and do not devalue it, then you should show proof that the current value is higher than the acquisition cost.
Some businesses hire artists to paint their office walls with striking decorative paintings. The type of artwork is referred to as inseparable because it is part of the business premises. Inseparable artwork should be treated as subsequent expenditure in the property, plant and equipment category as stipulated in the International Accounting Standards 16. Since it is part of the plant, such artwork must be depreciated throughout its useful life. The depreciation period will, however, depend on how long the piece of art stays on the walls of the business premises.
For more information, reach out to a company that offers property depreciation services.