Although required under IFRS, the term component depreciation
is not universally understood or used in the United States, nor is it mentioned at all in U.S.
97-34, repealed component depreciation
, but the accompanying 15-year life for buildings only temporarily removed some of the sting, because the modified accelerated cost recovery system provisions of the Tax Reform Act of 1986, P.L.
In excess IAS/IFRS allows the use of fair value of property, of intangible assets and also the component depreciation
or individual understanding of the important parts.
Topics that received the most comments--generally in favor of further simplifications--included: consolidation; amortization of goodwill and other indefinite life intangibles; component depreciation
and annual review of residual values; financial instruments; requirements for statements of cash flows and changes in equity; measurements for impairments and finance leases; sharebased payment; employee benefits; and income taxes.
deduction--Transaction 8: In evaluating the tax position on the $100,000 book-tax difference for the component depreciation
deduction, management developed a probability distribution of possible outcomes based on the issue's technical merits (see Exhibit 8, above).
Nothing good ever lasts forever; with the passage of the Economic Recovery Tax Act (ERTA) in 1981, the use of component depreciation
Both owners and CPAs frequently confuse the new rules with the outdated "component depreciation
" that was eliminated in the 1980s.
You may remember the method of depreciating your properties referred to as component depreciation
. This was a method that allowed you to divide your property into components and depreciate them over much shorter lives than the building itself.
In contrast, the eighth edition demonstrated long-lived component depreciation
over the economic life of the improvements in its breakdown method example.
These matters pertain to the capitalization of qualifying development costs; allowable inventory costing methods (i.e., use of the last-in, first-out [LIFO] method is prohibited under IFRS); permissible use of the revaluation model for property, plant, and equipment (PP&E); use of component depreciation
; and the allowable reversal of impairment losses.
Although component depreciation
was no longer available, the ability to identify personal property embedded in the cost of real estate was still available.