 Hello and welcome to the session in which we would look at the group and composite depreciation methods. What is the big idea behind this group and composite depreciation? Well, the idea is rather than tracking each individual asset individually for depreciation. We're gonna create a group or a composite rate to depreciate the whole group all at once. The main purpose for this is to reduce record keeping costs. So rather than keeping track of each individual asset, you might have many of these assets that are similar of similar life, and they could be the similar what you will do is you will group them all together. So it's easier reducing record keeping costs. We could have a group method, the group method or a composite method. A group method is used when the assets are similar in nature and they have approximately the same useful life. The composite method is used when we have this similar asset and have different lives. Regardless, we could either use a group or a composite method. For both methods, you simply will find an average and you depreciate the average depreciation rate and you will depreciate based on that average. The best way to look to examine this is to take a look at an example and see how it works. This topic is covered in both intermediate accounting as well as the CPA exam. Whether you are an accounting student or a CPA candidate, I strongly suggest you take a look at my website, farhatlectures.com. I don't replace your CPA review course nor your accounting course. I'm a useful addition. I can shed light. I can explain the material differently in a different way than your CPA review course or your college course. By doing so, you might be able to understand the material better. By doing so, you can improve your score. And by doing so, you can pass the exam, put the exam behind you and focus on your career. Your risk is one month of subscription. You give it a try. You like it. 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Take a look at my LinkedIn recommendation like this recording, share it with other connect with me on Instagram, Facebook, Twitter, and red. So let's take a look at this example. Adam Delivery Company began operation in 2025. It will depreciate its fleet of delivery vehicle using a group method. So basically they have vans, mini trucks, and trucks. That's the cost for each asset. That's the residual value. And these are the total. This is the depreciable base, which is the cost minus the residual value. Then this is the estimated life for each asset. Then we'll have the depreciation using the straight line. Basically the depreciable base divided by the life, which is using the straight line. And this is what we come up with as depreciation per year. Now what we will do is this. We're going to find group depreciation rate by taking the depreciation amount divided by the cost. And our group depreciation rate is 15.85. So this is basically the rate that we're going to be depreciating this group on 15.85. Then we can also find what's called the composite life or the average service life, which is by taking the depreciable base divided by 61800. It means it's going to take us approximately five years, 5.12, 5.12 rounding, 5.12 years to depreciate this group, all the assets in this group. Now, once we compute the group depreciation rate and the average service life, usually the company stick with them. Usually stick with them regardless whether they add or dispose of individual asset. And that's the point. The point is you dispose of some asset, you add some assets. It should average out to be the same. Sometimes the companies do change, do redo those computation. It doesn't really matter. You don't have to worry about this for the CPA exam. You just know that sometimes they keep it, sometimes they don't. They will compute a new one. So how do we compute the depreciation expense? You would take the group rate, which happens to be 15.85, times the total cost of the asset in that group for that period. Also, there is no gain and loss recorded when a group or composite asset is retired or sold. Simply put, when we sell an asset, since we are not keeping track of each asset individually, how do we know? We can't know whether we have a gain or a loss because we're not keeping track of that individual asset. Therefore, what we do is we bury the gain and the loss and accumulate the depreciation. And the best way to illustrate this is to take a look at an example. A delivery truck with a cost of 10,000 is sold 4.4. That's all what we have. In the year 2027, we don't know what was the loss, what was the gain because we don't know accumulated depreciation. So what do we do? We take the cash, 4,000 debit the cash, credit the vehicle. Technically we have a loss, but we don't know whether it's truly a loss or not because we're not keeping track of this asset. Specifically, we would reduce and for the difference, accumulated depreciation. Accumulated depreciation. And this is basically what you need to know for the CPA exam or for your accounting class. When it comes to group and composite depreciation, if it's used in the real world, the software will do it and you'll be able to explain it to the users, to the managers, to the client. But this is basically all what you need to know from an academic perspective. At the end of this recording, I'm going to remind you whether you are an accounting student or a CPA candidate. I don't replace your CPA review course. Use me as a supplement. I provide you additional resources, multiple choice, true, false, previously AI CPA questions. Invest for a month. See if it's helping you. If it does, great. If it's not, you can cancel. That's your risk. The CPA exam is worth it. Study hard. Good luck. Invest in yourself and most importantly, stay safe.