Composite or group depreciation is a depreciation system whereby
A) the years of useful life of the various assets in the group are added together and the total divided by the number of items.
B) the cost of individual units within an asset group is charged to expense in the year a unit is retired from service.
C) a straight-line rate is computed by dividing the total of the annual depreciation expense for all assets in the group by the total cost of the assets.
D) the original cost of all items in a given group or class of assets is retained in the asset account and the cost of replace?ments is charged to expense when they are acquired.

Question

Quizplus · Accepted Answer

In composite or group depreciation, a straight-line rate is computed by dividing the total of the annual depreciation expense for all assets in the group by the total cost of the assets. This rate is then applied to the cost of each individual asset in the group to calculate its annual depreciation expense. This method ensures that each asset is depreciated over its expected useful life, while simplifying the accounting process by treating the group of assets as a single unit. Option A is incorrect because it refers to an averaging method that does not take account of the different useful lives of the assets in the group. Option B is incorrect because it suggests that the cost of a retired unit is charged to expense, which is not consistent with generally accepted accounting principles. Option D is incorrect because it suggests that the cost of replacement assets is expensed, which is not consistent with the matching principle.

Composite or Group Depreciation Is a Depreciation System Whereby