Component depreciation
Allocate the asset’s cost to significant parts and depreciate each over its own useful life using a method reflecting consumption of its benefits. Parts with the same useful life and method may be grouped. When a significant component is replaced, recognise the replacement cost if the criteria are met and derecognise the carrying amount of the replaced component. Routine servicing is expensed.
Worked example
A building costs $1 million, including a $200,000 roof with a 20-year life. With zero residual value and straight-line depreciation, the roof’s annual depreciation is $10,000; the remainder is depreciated over its own useful life.
Common mistake
Using one useful life for every significant part regardless of consumption patterns or keeping the old component on the books after recognising its replacement.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |