Accounting

How To Depreciate Spare Parts In Property, Plant and Equipment

As per paragraphs 43 to 47 of IAS 16, we came to know How To Depreciate Spare Parts In Property, Plant and Equipment.

43.    To Depreciate Spare Parts, each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

44.    An entity allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part.  For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft, whether owned or subject to a finance lease.

45.    A significant part of an item of property, plant and equipment may have a useful life and a depreciation method that are the same as the useful life and the depreciation method of another significant part of that same item.  Such parts may be grouped in determining the depreciation charge.

46.    To the extent that an entity depreciates separately some parts of an item of property, plant and equipment, it also depreciates separately the remainder of the item.  The remainder consists of the parts of the item that are individually not significant.  If an entity has varying expectations for these parts, approximation techniques may be necessary to depreciate the remainder in a manner that faithfully represents the consumption pattern and/or useful life of its parts.

47.    An entity may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item.

Components depreciation means breaking an asset down into its component parts for separate depreciation of those parts.

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