Asset Details
€180.000
€10.000
IAS 16 Depreciation Audit Working Paper Template — free PDF
Practical audit guide covering all four depreciation methods with worked examples, component depreciation checklist, change-in-estimate documentation template, and useful life benchmarks by asset class.
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IAS 16 Depreciation for Hospitality
The hospitality industry — hotels, restaurants, resorts, and leisure facilities — has a distinctive PP&E profile characterised by the building itself, furniture, fixtures and equipment (FF&E), kitchen and laundry equipment, and technology systems. The most significant characteristic of hospitality PP&E is the regular renovation cycle: hotels typically renovate rooms every 7–10 years, restaurants refit every 5–8 years, and technology systems are replaced every 3–5 years. This creates a predictable pattern of capitalisation, depreciation, derecognition, and re-capitalisation.
FF&E (furniture, fixtures, and equipment) is a hospitality-specific category that includes guest room furniture, lobby furnishings, restaurant seating, curtains and soft furnishings, lighting fixtures, and decorative elements. FF&E is typically depreciated over 5–10 years on a straight-line basis. Many hotel management agreements require the owner to maintain an FF&E reserve (typically 3–5% of gross revenue) set aside annually for periodic renovations. While the FF&E reserve is a management and cash flow concept, it does not affect the IAS 16 depreciation calculation — depreciation is based on the actual useful life of the installed assets, not the reserve funding level.
Impairment is a recurring concern for hospitality PP&E. Hotels and restaurants are subject to seasonal demand fluctuations, destination-level economic factors, and competitive dynamics that can reduce expected future cash flows below the carrying amount of the property. Each hotel or restaurant is typically a separate cash-generating unit under IAS 36. Underperforming properties should be tested for impairment, comparing the recoverable amount (higher of fair value less costs of disposal and value in use) to the carrying amount. The COVID-19 pandemic demonstrated the vulnerability of hospitality assets to impairment on a sector-wide scale.
Typical Asset Classes — Hospitality
| Asset | Useful Life | Method | Notes |
|---|---|---|---|
| Hotel buildings | 30–50 years | Straight-line with components | Separate land, structure, roof, HVAC, interiors, FF&E |
| FF&E (furniture, fixtures, equipment) | 5–10 years | Straight-line | Replaced on renovation cycles; industry-specific reserve accounting common |
| Kitchen equipment | 5–8 years | Straight-line | Ovens, refrigeration, extraction systems |
| Laundry equipment | 7–10 years | Straight-line | Commercial washers, dryers, ironing systems |
| Guest room technology | 3–5 years | Straight-line | TVs, minibars, electronic locks, Wi-Fi infrastructure |
Key IAS 16 Considerations — Hospitality
Regular renovation cycles require systematic derecognition and re-capitalisation
FF&E reserve is a cash flow concept — does not affect IAS 16 depreciation
Each property is typically a separate CGU for impairment testing
Component depreciation for hotel buildings (structure vs fit-out)
Seasonal demand fluctuations may create impairment indicators
Worked Example: Restaurant Equipment Package
A hospitality company installs a complete restaurant equipment package in June 2025 for €180,000 (commercial kitchen equipment, extraction, refrigeration). Estimated residual value is €10,000, useful life is 8 years. Straight-line depreciation with a December year-end.
Cost: €180,000
Residual value: €10,000
Depreciable amount: €170,000
Annual depreciation: €21,250 (straight-line)
First year depreciation: €12,396 (pro-rata: 7 months — June to December)
Audit Considerations
Hospitality auditors should focus on the consistency between renovation plans and depreciation periods, impairment testing for underperforming properties, and the derecognition of old assets during renovations. FF&E reserve accounting (common under management agreements) should not influence IAS 16 depreciation calculations.