R1 assets on your fixed asset register

Technical Insights by AssetTrail.

It is common for businesses to find assets on the fixed asset register with a carrying amount of R1 even though those assets are still actively used in the business.

This often raises two questions:

1. Does the existence of fully depreciated assets indicate a problem with the asset register?
2. Does the 2025 IFRS for SMEs Accounting Standard, with its new Section 12 on Fair Value Measurement, mean those assets must now be revalued?

In most cases, the answer to both questions is no — but R1 assets are still an important signal that management should review useful lives, residual values and depreciation assumptions.

Why assets end up with a carrying amount of R1

An asset generally reaches a carrying amount of R1 when it has been fully depreciated over its estimated useful life but continues to be used in the business.

Examples include:

• vehicles that remain operational after their estimated useful life;
• rental equipment that continues to generate income;
• manufacturing machinery that remains productive for many years; and
• office equipment that lasts longer than management expected.

This happens because depreciation is based on estimates. Management estimates useful life and residual value, then allocates the depreciable amount over that useful life. The actual retirement date may differ from the original estimate.

A carrying amount of R1 does not mean the asset has no economic value. It simply means the depreciable amount has already been recognised in profit or loss.

Is an R1 asset a problem?

Not necessarily.

A small number of fully depreciated assets still in use is common and should not automatically be viewed as an accounting failure.

However, if a significant part of the asset register consists of R1 assets that are still operating effectively, management should ask whether:

• useful lives are being underestimated;
• residual values are too low;
• depreciation methods remain appropriate; and
• historical estimates reflect actual operating experience.

The issue is usually not the R1 carrying amount itself. The issue is whether the assumptions behind the depreciation policy remain appropriate.

Depreciation is not intended to track market value

A common misconception is that depreciation should keep the carrying amount close to market value.

That is not the objective of Section 17 of the IFRS for SMEs Accounting Standard.

Depreciation is intended to allocate the depreciable amount of an asset over its useful life in a way that reflects the pattern in which the asset’s future economic benefits are consumed.

The accounting question is therefore:

How is the business consuming the economic benefits embodied in this asset?

It is not:

What is the asset worth today?

As a result, an asset can have a carrying amount of R1 while still having a market value and continuing to generate revenue.

Does the new fair value guidance change this?

The third edition of the IFRS for SMEs Accounting Standard was issued in February 2025 and is effective for annual reporting periods beginning on or after 1 January 2027, with early application permitted. It introduced a new Section 12, Fair Value Measurement.

This may lead some preparers to think that fully depreciated assets with market value should now be revalued. That conclusion is generally incorrect.

Section 12 explains how to measure fair value when fair value is required or permitted elsewhere in the Standard. It does not, by itself, require property, plant and equipment to be revalued.

In simple terms:

• Section 12 explains how fair value is measured.
• Other sections determine whether fair value must or may be used.

Where property, plant and equipment is accounted for under Section 17 using the cost model, the carrying amount remains based on cost less accumulated depreciation and accumulated impairment losses.

The fact that a vehicle with a R1 carrying amount could be sold for R150,000 does not automatically create a requirement to revalue that vehicle.

What should management focus on instead?

Where large numbers of assets remain productive after being fully depreciated, management should focus on the estimates used for depreciation.

Useful lives

If assets consistently remain economically useful for longer than their estimated useful lives, future useful life estimates may need to be revised.

Residual values

If assets are regularly sold for meaningful amounts at the end of their service lives, residual values may need to be reconsidered.

Depreciation methods

If the way an asset is used differs from the original expectation, the depreciation method may need to be reassessed.

Register quality

Fully depreciated assets can also reveal practical asset register issues: assets still listed but no longer physically held, assets in use but not reviewed, or policies that have not been updated as the business has learned from experience.

Practical example

Assume a generator is purchased for R100,000 with:

• a useful life of five years;
• a residual value of nil; and
• straight-line depreciation.

After five years, the generator has a carrying amount of R1. It then remains operational and continues generating rental income for another four years.

This does not automatically mean the financial statements are wrong. It may simply indicate that the original useful life estimate was conservative.

For future generators, management may conclude that an eight- or nine-year useful life better reflects actual experience. The practical response is usually to improve future estimates rather than revalue the existing generator to market value.

AssetTrail takeaway

R1 assets are not automatically a fair value problem. They are a useful management signal.

For most SMEs, the right response is to review useful lives, residual values and depreciation assumptions — and to keep a clear record of the basis for those judgements.

AssetTrail helps SMEs and their accountants maintain structured fixed asset registers, book value and tax base records, depreciation policies, residual value assumptions and audit-ready reports. That makes it easier to identify R1 assets, review assumptions and support depreciation decisions over time.

Start using AssetTrail to manage fixed asset registers, depreciation schedules and audit-ready reporting in one place.

References

• IFRS Foundation: IASB issues a major update to the IFRS for SMEs Accounting Standard
• IFRS Foundation: Supporting materials for the 2025 IFRS for SMEs Accounting Standard
• IFRS for SMEs Accounting Standard, Section 17: Property, Plant and Equipment.
• IFRS for SMEs Accounting Standard, Section 12: Fair Value Measurement.

This article is general technical commentary and should not be treated as entity-specific accounting advice. The appropriate treatment depends on the facts, accounting policy elections and applicable reporting framework.