DEPRECIATION, IMPAIRMENTS, AND DEPLETION
This IFRS Supplement provides expanded discussions of accounting guidance under
International Financial Reporting Standards (IFRS) for the topics in Intermediate
Accounting. The discussions are organized according to the chapters in
Editions) and therefore can be used to supplement the U.S. GAAP
requirements as presented in the textbook. Assignment material is provided for each sup-
plement chapter, which can be used to assess and reinforce student understanding of IFRS.
As indicated in Chapter 10, companies are required to use
requires that each part of an item of property, plant, and equipment that is significant
to the total cost of the asset must be depreciated separately. Companies therefore have
to exercise judgment to determine the proper allocations to the components. As an
example, when a company like
(FIN) purchases a building, it must determine how
the various building components (e.g., the foundation, structure, roof, heating and cool-
ing system, and elevators) should be segregated and depreciated.
To illustrate the accounting for component depreciation, assume that EuroAsia
Airlines purchases an airplane for
100,000,000 on January 1, 2011. The airplane has a
useful life of 20 years and a residual value of
0. EuroAsia uses the straight-line method
of depreciation for all its airplanes. EuroAsia identifies the following components,
amounts, and useful lives, as shown in Illustration 11-1.
Component Useful Life
Illustration 11-2 shows the computation of depreciation expense for EuroAsia for 2011.
As indicated, EuroAsia records depreciation expense of
8,600,000 in 2011, as follows.
On the statement of financial position at the end of 2011, EuroAsia reports the airplane
as a single amount. The presentation is shown in Illustration 11-3.
Presentation of Carrying
Amount of Airplane
Less: Accumulated depreciation—airplane
Chapter 11 Depreciation, Impairments, and Depletion
Under U.S. GAAP, component
depreciation is permitted but
is rarely used.