COMPONENT DEPRECIATION: IS IT REQUIRED?
Aug 17, 2016 Vipul Mittal, CPA
Despite convergence efforts made by FASB and IASB over the past several years, certain differences still remain between U.S. GAAP and IFRS. One of those is the requirement to apply the component depreciation.
Let's first see what component depreciation is? If an asset is made up of individual components that are significant with respect to the total cost of the item, then each component may be depreciated separately. A very good example of an asset for which component depreciation is considered appropriate is aircraft. So three mains components of an aircraft are airframe, engines and interiors. So you may separately capitalize and depreciate these 3 components.
Now the question whether the component depreciation is required? And the answer is under U.S. GAAP, companies are neither required nor prohibited from applying this method. But under IFRS, it is required.