remainder of the item, The remainder represents the aggregate amount of the parts of the ite individually not significant and not componentised. In fact the reminder itself becomes 4 com fi ‘The balance sheet will however continue to show the aireratt or the ship as a single unit It nee the gross book value, total depreciation and net book value will still be reflected in correspon figures, SE ch ARPIT INDUSTRIES LTD. COMPONENT APPROACH TO DEPRECIATION Let us continue with illustration 1 of Arpit Industries Ltd. having adopted SLM. Let us now attempt a componey” break-up of the machine: Components Cost Useful lite | Residual vg SI. No. Amount (2) Years Amount 2) 5! Structural components 25,00,000 5 125005 2 Mechanisms that control movement 17,00,000 4 85.005 3 Other contro! equipments. 10,00,000 3 50,000 52,00,000 = 260,000 Required: 1, Work out the total depreciation for the 1* year. 2. Show how the machine will be disclosed in the balance sheet of the 1 year, 3. Compare the result with that of illustration 1 and analyse the difference, SOLUTION __1, SLM Depreciation for the 1* year: Property, Plant and Equipment- Amount (3) Machine Structural Mechanisms that | Other control Total components | control movement | equipments Cost 25,00,000 17,00,000 10,00,000. 52,00,000 Less: Residual value (1,25,000) (85,000) (60,000) (2,60,000) ‘Depreciable amount ....(A) 23,75,000 16,15,000 9,50,000 49,40,000 Useful life...(B) 5 years 4 years 3 years ‘Annual depreciation....(A/B) 4, 75,000 4,03,750 3,16,667 14,95,417 Notes: 7, ‘Structural components’ will be deproclated over § years, 2, "Mechanisms that control movement’ will be depreciated over 4 years, 3. ‘Other control equipments’ will be depreciated over S years.[eq 2 Disclosure in the balance sheet of 1% year: | | Details | Goss book value (cost) | less: Accumulated depreciation | Netbook value | Reg. 3: Analysis; 1* Year end