Take This Quiz & Predict Your Score in the coming CA CS or CMA Exam!
  • How important it is for you to pass the exam in this attempt?
  • What percentage of course you have finished well so far roughly?
  • How many hours you study in a day?
  • How many times you have revised the topics you have finished
  • Have you taken online or pen drive or live class from a renowned faculty?
  • What percentage of the classes you have watched?
  • Have you attempted mock tests or practice tests yet?
  • Are you planning to attempt mock tests conducted by external bodies- ICAI, ICSI, ICMAI or other institute?
  • How many tests you have taken?
  • Did you manage to finish the test papers on time?
  • Are you strictly following study material provided by the exam conducting authority such as ICAI/ICSI/ICMAI/Other Body?
  • How is your health in general?
  • How is your food habit?
  • Any interest in yoga or exercise or play sports regularly?
  • Planning to sleep well nights before the exams?
  • Planning to have light food and water before exams?

Component and group depreciation

Component and group depreciation

 Component depreciation

When a fixed asset has separately identifiable pieces with separate values, each part can be independently depreciated. The asset itself is assigned the rest of the cost and is depreciated as if it’s another component. This method of depreciation is permitted under U.S. GAAP.

As an illustration, let’s assume that Friends Company, a fictitious entity, purchases manufacturing equipment that includes three separately identifiable components – a large piston that wears out every 5 years, a major torque arm that has to be replaced every 3 years, and a compressor which is expected to be in use for 5 years before being replaced. Let’s assume that the entire machine costs $2 million and is expected to be in use for 30 years; the piston costs $200,000; the torque arm costs $60,000; and the compressor costs $20,000. Each year, Friends Company will record depreciation of $40,000 for the piston (i.e., $200,000 ÷ 5 years), $20,000 for the torque arm (i.e., $60,000 ÷ 3 years), $4,000 for the compressor (i.e., $20,000 ÷ 5 years), and $57,333 (i.e., $1,720,000 ÷ 30 years) for the machine itself.  Note that the cost of machine itself is calculated as: $2,000,000 – $200,000 – $60,000 – $20,000 = $1,720,000.  The total annual expense equals $121,333 (i.e., $40,000 + $20,000 + $4,000 + 57,333). Using standard straight line depreciation, the expense would have been $66,667 per year (i.e., $2,000,000 ÷ 30 years).

Notice that for regular depreciation methods (i.e., without splitting the cost of an asset into separate components), component replacement is treated as a repair/maintenance expense, which is debatably inappropriate for large, easily identifiable components.

2. Group depreciation

A company with a large number of depreciable assets may decide to split them up into one or more groups and depreciate each group using the total depreciable base (cost) of all assets in the group – original cost minus salvage value – and an average estimated useful life and depreciation percentage.

Because the depreciation is averaged out over the entire group of assets, selling one of the assets does not result in any gain or loss. Instead of an income statement effect, the sale will merely reduce accumulated depreciation for the difference between original cost and the cash received. In essence, the asset is treated as being sold for book value.

Component and group depreciation

At CAKART you will get everything that you need to be successful in your CA CS CMA exam – India’s best faculty video classes (online or in pen drive) most popular books of best authors (ebooks hard copies) best scanners and all exam related information and notifications.Visit and chat with our counsellors any time. We are happy to help you make successful in your exams.


Click Here to download FREE CA CS CMA Text Books.

Leave a comment

Your email address will not be published. Required fields are marked *