4/9/2014 Componentization and Cost Segregation

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Componentization
IFRS requires a "component approach" when accounting for property, plant and equipment. Where fixed assets have two or
more major components with substantially different useful lives, the assets should be treated as separate components and
depreciated over these different useful lives. The objective is to ensure that the financial position is fairly reflected in the
balance sheet and that the income and expenditure account appropriately reflects the consumption of economic benefits
inherent in those assets.
Achieving conformity with IFRS requires certain efforts, but these efforts provide apparent benefits through more accurate
depreciation calculation, more accurate reflection of capitalized turnaround costs, and simple and more accurate reflection
of fixed asset components disposal in the accounting ledger.
A more accurate accounting of fixed assets is beneficial for other uses that may be important for an asset-heavy company or
including property tax, insurance or asset-backed financing. Having componentized accounts of fixed assets for a complex
production plant allows achievement of significant savings when preparing valuations of assets for other purposes. Our
scope includes evaluation of assets, especially machinery and equipment, which can be componentized for IFRS purposes.
According to IAS 16 (proposed revision), an entity allocates the amount initially recognized in respect of an asset to its
component parts and accounts for each component separately when:
1. The components have different useful lives, or
2. The components provide benefits to the entity in a different pattern.
American Appraisal provides componentization services for plant and machinery to assist clients in complying with IFRS,
especially IAS 16.
Cost Segregation
Cost segregation is the comprehensive analysis of all costs associated with a construction project or building acquisition
with the objective to maximize depreciation benefits by segregating and documenting the cost of all short-lived property
identified as part of the capitalized cost of the project. Cost segregation is similar to componentization; however, it is only
applicable to construction projects or buildings. Cost segregation analysis can be performed for real estate properties in the
following cases:
Construction or expansion projects
Acquisitions of an operating facility
Prior acquisition/construction project
After initial capitalization where cost segregation has not previously been performed
Our services provide clients with accurate and up-to-date analysis for many purposes, including:
Distinguishing long-lived property from short-lived property for income tax purposes.
Distinguishing real property and fixtures from personal property for property tax and sales/use tax purposes
Separating non-assessable costs for property tax base year reporting
Distinguishing insurable from uninsurable property
For IFRS compliance
Why American Appraisal?
We have extensive experience working with institutions and their auditors to meet financial reporting requirements and
maintain accurate componentization/cost segregation records. We perform comprehensive research and due diligence to
guarantee the accuracy of our reports and ensure that errors are not perpetuated.
Please feel free to contact one of our experts to discuss how we might assist you with your componentization/cost
segregation analysis of fixed assets.
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