FAR 3_05

• 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 depreciation
• IFRS: Requires component 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.

• Depreciable Cost = the combined total cost of the group’s assets – the combined estimated salvage value
• Average Composite Life: The depreciable cost / The annual depreciation

• Price paid for asset
• - Salvage Value
• = Depreciable Cost
• ----------------------
• Depreciable Cost / Estimated Life of Asset = Annual Depreciation Expense

• If N = useful life, then the sum-of-the-years’ digits = N x (N+1)/2
• Depreciable Cost = Price paid for asset - Salvage Value
• Depreciation Expense = Depreciable Cost x (remaining life of asset/sum-of-the-years’ digits)

• Depreciable Cost = Price paid for asset - Salvage Value
• Rate Per Unit = Depreciable Cost / Total Estimated Units
• Depreciation Expense = Number of Units Produced x Rate Per Unit

• Depreciable Cost = Price paid for asset (do NOT subtract salvage value) – Accumulated Depreciation
• The depreciable cost changes each period
• Depreciable 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