Summary

The standard requires the cost, less its estimated residual value, be assigned to the cost accounting periods representing the assets’ estimated life and that its cost be assigned in a manner representing the pattern of consumption of services over the life of the asset. Estimated lives must be based on a reasonable estimate of their expected actual periods of usefulness. “Depreciation” is the process of allocating the amortized costs over their estimated useful life. CAS 409 considers the depreciation method used for financial accounting purposes to be the default method used for contract costing purposes unless that method does not reasonably reflect the expected consumption of services or is unacceptable for federal income tax purposes. Gains and losses on disposition of tangible assets are generally considered to be adjustments of depreciation costs previously charged in prior years where they are to be recognized in the period when disposition of the assets occur. The following provides details of the standard that we consider most relevant to our readers.

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