# FAR 3_05

 What is component depreciation? How do GAAP and IFRS differ on this concept? When the identifiable parts of a whole asset are valued and depreciated using their own expected life.Example: the plumbing, electrical, roof, elevator or transport systems are components of the building.GAAP: Does not typically use component depreciationIFRS: Requires component depreciation How is an asset retired when using Composite or Group depreciation? The retired asset and its associated accumulated depreciation are removed from the group, but any realized gain or loss continues to adjust the accumulated depreciation account – it is NOT recognized on the income statement. How is the average composite life of a group of assets calculated? Depreciable Cost = the combined total cost of the group’s assets – the combined estimated salvage valueAverage Composite Life: The depreciable cost / The annual depreciation How is the depreciation expense using the straight-line method calculated? Price paid for asset- Salvage Value= Depreciable Cost----------------------Depreciable Cost / Estimated Life of Asset = Annual Depreciation Expense How is the depreciation expense using the sum-of-the-years’ digits calculated? If N = useful life, then the sum-of-the-years’ digits = N x (N+1)/2Depreciable Cost = Price paid for asset - Salvage ValueDepreciation Expense = Depreciable Cost x (remaining life of asset/sum-of-the-years’ digits) How is the depreciation expense using the units of production calculated? Depreciable Cost = Price paid for asset - Salvage ValueRate Per Unit = Depreciable Cost / Total Estimated UnitsDepreciation Expense = Number of Units Produced x Rate Per Unit How is the depreciation expense using the declining balance calculated (assume 150% declining balance)? Depreciable Cost = Price paid for asset (do NOT subtract salvage value) – Accumulated DepreciationThe depreciable cost changes each periodDepreciable Cost / (original est. life x 1.5) [or the declining amount. It would be 2.0 if double-declining]STOP WHEN ASSET’S BOOK VALUE = SALVAGE VALUE AuthorBethM ID338311 Card SetFAR 3_05 DescriptionBecker Review 2018 Updated2018-02-21T05:47:00Z Show Answers