Following a recent change to the FAR 31.205-11, Depreciation that limits allowable depreciation for assets that have been reacquired subsequent to a sale-and-leaseback arrangement, DCAA’s new guidance to its staff reminding them that allowable depreciation costs for the re-aquired assets are to be based on the original acquisition costs of the assets that have since been sold and leased back then re-aquired.  Auditors are told to question costs claimed that exceed this limitation.  The memo states the guidance should be read in conjunction with recent FAR requirements addressing recognition of gains or losses with sale-leaseback transactions.  The guidance states the allowable depreciation costs are calculated based on the following formula:

1.  Net book value of the asset on the sale-and-leaseback date, plus
2.  Allowable gain/loss recognized on the sale-and-lease date, less
3.  Depreciation expense considered when determining the allowable lease costs.

The guidance further states the new depreciation limitation is applicable to only those assets that generated costs in the most recent accounting period prior to the reacquisition.  It says the rule would not apply in those situations where the contractor has re-acquied an asset subsequent to the passing of a full accounting period after the lease is terminated and the contractor ceases use of the asset.  The guidance includes a detailed, useful example taking into account both the new changes and methods of computing gains and losses on the disposition of assets (06-PAC-028R).

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