Composite depreciation is allowed under GAAP but is rarely used. Under IFRS it is required. Should...

Composite depreciation is allowed under GAAP but is rarely used. Under IFRS it is required. Should composite depreciation be required or allowed or prohibited? Defend your answer and remember, it is allowed under GAAP but rarely used.

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Expert Solution

Composite Depreciation is a method for calculating and claiming depreciation expense. The Composite is method depreciates an entire group of related assets as a single entity rather than individually It reduces labor requirements for asset tracking and asset reporting.Accounting practice almost everywhere must conform to country and international GAAP(Generally Accepted Accounting Principles).

We suggest to allow the method as it have its own benefits, and GAAPS allow it, but it’s not required at all because nowadays we have fixed asset accounting softwares which can track the depreciation for individual assets, it is not really necessary to use composite depreciation, which may explain its rare usage.

Another reason for not requiring it because when an asset that is being accounted for under this system is sold, the related accounting entry is a debit to cash for the amount received and a credit to the fixed asset account for the historical cost of the asset. If there is a difference between the two, record it against the accumulated depreciation account. This accounting treatment means that no gain or loss is recognized at the point of asset sale or disposal.This reason can’t be given for prohibiting the method because sale of assets is not an ordinary business activity. So we can say that remain it acceptable but no need to mandate it.

ekkarill92 answered 1 year ago

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