The answer to that question is, “it depends.” There are a couple of things to consider. First, was the asset physically destroyed in the event or not? If the asset was destroyed, then depreciation usually discontinues under the theory that an asset that no longer exists can’t depreciate. The assumption is that the insured party will acquire a new asset, at a new basis, which will begin to depreciate when acquired.
If the asset was not destroyed, does the asset depreciate based upon usage or the passage of time? For example, a forklift (kept indoors) would depreciate based upon use. In this case, depreciation would discontinue while the asset is idle.
However, if the asset is the capitalized portion of a new roof over the building, the item would continue to depreciate because the life of this asset is being reduced by the passage of time rather than what is taking place underneath the roof.
All assets and situations are unique, but this is a reasonable starting point for discussions between the adjuster and insured party. Do you have a question about your unique situation? Ask me below, in the Comments section.
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