CAS 409 – DETERMINING AND ALLOCATING DEPRECIATION COSTS

(Editor’s Note. As part of our continuing series on important cost principles and cost accounting standards, this is the second standard addressing capitalized assets and depreciation costs we have addressed. A good understanding of the standard will provide flexibility in how to amortize capital assets over various time periods so some of our discussion will be oriented in that direction. As is quite common with CAS, many of the provisions of the standard would, in practice, apply to non-CAS covered contractors since provisions of the standards are normally considered to be proper accounting practices. In our research we have used a variety of texts but relied most heavily on Accounting for Government Contracts – Cost Accounting Standards – edited by Lane Anderson as well as our own experience. Though the standard provides some potentially complex issues, we will focus on those issues having the greatest practical significance to our subscribers.)

Introduction

CAS 409 is the second cost accounting standard to treat the general area of fixed asset accounting. Whereas CAS 404, which we covered in the 1Q08 issue, establishes criteria for determining the acquisition costs of tangible capital assets that are to be capitalized, CAS 409 addresses issues of depreciating the costs of tangible assets over their lives. It provides criteria for assigning depreciable costs to cost accounting periods and for allocating those costs to the cost objectives for the period.

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