Using the breakdown method of estimating accrued depreciation:
| 1. | Each classification of depreciation is analyzed. |
| 2. | The dollar amount or percentage amount of depreciation for each classification is estimated. |
| 3. | The dollar amount for each classification is added to estimate the total depreciation. |
Steps in Estimating Depreciation by the Breakdown Method
| 1. | Estimate the dollar amount of curable physical deterioration (deferred maintenance): |
| A. | Identify each item of curable physical deterioration. |
| B. | Estimate the cost to cure each item of curable physical deterioration. |
| C. | Add the total of all deferred maintenance. |
| 2. | Estimate the dollar amount of incurable physical deterioration of short-lived components: |
| A. | Estimate the effective age of each component. |
| B. | Estimate the total physical life of each component. |
| C. | Calculate the percentage straight-line physical deterioration of each component by dividing the effective age by the physical life. |
| D. | Estimate the replacement cost new of each component. |
| E. | Estimate the dollar amount of depreciation of each component by multiplying the percentage depreciation by the replacement cost. |
| F. | Add the depreciation of each component to arrive at total incurable physical deterioration. |
| 3. | Estimate the dollar amount of incurable physical deterioration of long-lived items: |
| A. | Estimate the replacement cost of the entire building. |
| B. | Subtract the estimated replacement cost new of components for which depreciation was calculated in 1 and 2 above. |
| C. | Estimate the effective age of the entire building. |
| D. | Estimate the economic life of the entire building. |
| E. | Calculate the percentage straight-line depreciation for the long-lived components. |
| F. | Calculate the depreciation for the long-lived components by multiplying the straight-line depreciation percentage by the long-lived component's cost new. |
| 4. | Estimate total depreciation by adding the dollar amounts of the deferred maintenance, the incurable physical deterioration of short-lived components, and the incurable physical deterioration of long-lived components. |
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