Group depreciation

Group depreciation is the practice of assembling several similar fixed assets into a single group, which is used in aggregate as the cost base for depreciation calculations.  Assets should only be assembled into a group if they share similar characteristics and have approximately the same useful lives. Examples of group depreciation are "group of desks" and "group of trucks" that are treated as single assets.

Group depreciation should be calculated on the straight-line basis. When an asset recorded as part of a group is retired, the related asset cost and accumulated depreciation are removed from the group's asset balance and related accumulated depreciation, respectively.

The use of group depreciation can reduce the time required to calculate depreciation, especially when large numbers of assets are aggregated into a single group. However, the practice is not recommended for the following reasons:

  • Computerized depreciation. If accounting software is used to automate the calculation of depreciation, no labor is saved by using group depreciation.
  • Capitalization limit. A large number of small-expenditure items can be clustered into a group and treated as a fixed asset, even though they would have been charged to expense if treated as individual units that fall below the corporate capitalization limit. This means that the use of group depreciation can alter the amount of reported profitability by deferring expense recognition. The result is a one-time boost in profits, followed by reduced profits over multiple periods as the extra depreciation is recognized.
  • Asset tracking. It can be difficult to physically track every asset comprising an asset group.
  • Disposal. The disposal accounting for an asset within an asset group can be confusing, especially when it is not certain which group an asset was assigned to.
  • Group characteristics. An asset may be fraudulently inserted into the wrong asset group in order to take advantage of the longer useful life or larger salvage value assumptions used for that group (which would effectively delay expense recognition for the asset).

Consequently, though there may be an occasional use for group depreciation, the concept is rarely employed.

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