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    Depreciation Methods: Units or groups having a composite life

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    The certified public accountant is frequently called upon by management for advice regarding methods of computing depreciation. Of comparable importance, although it arises less frequently, is the question of whether the depreciation method should be based on consideration of the assets as units, as a group, or as having a composite life.

    a) Briefly describe the depreciation methods based on treating assets as 1) units and 2) a group or as having a composite life.

    b) Present the arguments for and against the use of each of the two methods.

    c) Describe how retirements are recorded under each of the two methods.

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    Instruction A
    For both types of assets, the same depreciation methods can be used. Several of these methods include straight line depreciation, double-declining, sum-of-the-years digit, and units of production. For example, in straight line depreciation, the depreciable cost of the asset, that is purchase cost including incidental costs less ...

    Solution Summary

    The units of groups having a composite life for depreciation methods are determined.