## Component Accounting (Componentization)
When a single PPE item has significant parts with different useful lives, each part must be depreciated separately.
---
### The Core Rule
- Identify components that are significant and have different useful lives
- Assign separate cost and depreciation to each component
- Treat each component independently for depreciation and replacement
---
### Replacement of a Component (Major Replacement)
When a significant component is replaced:
| Step | Action |
|---|---|
| 1 | Add the cost of new component to the asset |
| 2 | Remove the Carrying Amount (CA) of the old component from books |
| 3 | Recognize gain/loss on removal of old component in P&L |
| 4 | Depreciate the new component over its own useful life |
---
### Major Inspections / Overhaul
Costs of major inspections or overhauls that generate future economic benefits are capitalized as a separate component and depreciated over the period until the next inspection.
---
### Illustration: Private Jet
Day 1: Total Cost ₹100 Cr, Life 10 Years
| Component | Cost | Useful Life | Annual Depreciation |
|---|---|---|---|
| Engine | ₹20 Cr | 5 years | ₹4 Cr/yr |
| Body | ₹80 Cr | 10 years | ₹8 Cr/yr |
| Total | ₹100 Cr | ₹12 Cr/yr |
End of Year 1 — Carrying Amounts:
| Component | CA |
|---|---|
| Engine | ₹16 Cr |
| Body | ₹72 Cr |
Year 2 — Engine Replaced: New Cost ₹24 Cr, Life 8 Years
| Engine | Body | |
|---|---|---|
| Old CA (removed from books) | ₹16 Cr | — |
| New component cost added | ₹24 Cr | — |
| Revised CA | ₹24 Cr | ₹72 Cr |
| Remaining / Own life | 8 yrs | 9 yrs |
| Revised annual depreciation | ₹3 Cr | ₹8 Cr |
| CA at end of Year 2 | ₹21 Cr | ₹64 Cr |
Revised total CA of Jet = ₹21 Cr + ₹64 Cr = ₹85 Cr