- Trending Categories
- Data Structure
- Operating System
- MS Excel
- C Programming
- Social Studies
- Fashion Studies
- Legal Studies
- Selected Reading
- UPSC IAS Exams Notes
- Developer's Best Practices
- Questions and Answers
- Effective Resume Writing
- HR Interview Questions
- Computer Glossary
- Who is Who
Describe concept of composite depreciation.
Composite depreciation claims depreciation expenses by depreciates group of related assets into single entity than individual. Composite depreciation is the application of straight-line depreciation. If the asset is sold, then account entry is debited to cash and credited to fixed asset. The difference between original cost and sold cost is debited to accumulated depreciation. In composite method, no loss or no gain on sale of fixed asset is recognized.
Steps to calculate composite depreciation are as follows −
- Accumulation of total depreciation cost of assets.
- Allocate single useful life for asset group.
- Yearly depreciation = useful life/ total depreciation.
- Document the depreciation.
- Calculate depreciation using composite depreciation, the data is given below.
|Asset||Cost (Rs.)||Residual value (Rs.)||Lifespan (years)|
|Asset – 1||10000||2000||8|
|Asset – 2||25000||4000||7|
|Asset – 3||5000||500||3|
|Asset – 4||80000||10|
The solution is as follows −
|Asset||Cost (Rs.)||Residual value (Rs.)||Depreciation cost (Rs.)||Lifespan (years)||Deprecation (Rs.)|
|Asset – 1||10000||2000||10000 – 2000 = 8000||8||8000/8 = 1000|
|Asset – 2||25000||4000||25000 – 4000 = 21000||7||21000/7 = 3000|
|Asset – 3||5000||500||5000 – 500 = 4500||3||4500/3 = 1500|
|Asset – 4||88000||88000 – 0 = 88000||10||88000/80 = 1100|
Group depreciation = depreciation / total cost
= 6600 / 128000
Average useful life = 1/group depreciation
= 19.38 years
- Related Articles
- Explain the concept of depreciation in accounting.
- Explain the concept of machine hour rate depreciation method.
- Describe about bank reconciliation concept in accounting & finance
- Accounting Depreciation Vs Tax Depreciation
- Differentiate between sinking fund depreciation and annuity method of depreciation.
- Compare accounting depreciation and tax depreciation.
- Difference between Accumulated Depreciation and Depreciation Expense
- Difference between Tax Depreciation and Book Depreciation
- Differences between Accelerated Depreciation and Straight-Line Depreciation
- Explain revaluation method of depreciation.
- Sinking Fund Method of Depreciation
- Explain insurance policy method of depreciation
- Explain about Mileage method of depreciation.
- Diminishing Value Method of Calculating Depreciation
- Straight Line Method of Calculating Depreciation