[Code of Federal Regulations]

[Title 48, Volume 1]

[Revised as of October 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 48CFR31.205-11]



[Page 614-615]

 

            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM

 

                CHAPTER 1--FEDERAL ACQUISITION REGULATION

 

PART 31_CONTRACT COST PRINCIPLES AND PROCEDURES--Table of Contents

 

          Subpart 31.2_Contracts With Commercial Organizations

 

Sec. 31.205-11  Depreciation.



    (a) Depreciation on a contractor's plant, equipment, and other 

capital facilities is an allowable contract cost, subject to the 

limitations contained in this cost principle. For tangible personal 

property, only estimated residual values that exceed 10 percent of the 

capitalized cost of the asset need be used in establishing depreciable 

costs. Where either the declining balance method of depreciation or the 

class life asset depreciation range system is used, the residual value 

need not be deducted from capitalized cost to determine depreciable 

costs. Depreciation cost that would significantly reduce the book value 

of a tangible capital asset below its residual value is unallowable.

    (b) Contractors having contracts subject to 48 CFR 9904.409, 

Depreciation of Tangible Capital Assets, shall adhere to the requirement 

of that standard for all fully CAS-covered contracts and may elect to 

adopt the standard for all other contracts. All requirements of 48 CFR 

9904.409 are applicable if the election is made, and contractors must 

continue to follow it until notification of final acceptance of all 

deliverable items on all open negotiated Government contracts.

    (c) For contracts to which 48 CFR 9904.409 is not applied, except as 

indicated in paragraphs (g) and (h) of this subsection, allowable 

depreciation shall not exceed the amount used for financial accounting 

purposes, and shall be determined in a manner consistent



[[Page 615]]



with the depreciation policies and procedures followed in the same 

segment on non-Government business.

    (d) Depreciation, rental, or use charges are unallowable on property 

acquired from the Government at no cost by the contractor or by any 

division, subsidiary, or affiliate of the contractor under common 

control.

    (e) The depreciation on any item which meets the criteria for 

allowance at price under 31.205-26(e) may be based on that price, 

provided the same policies and procedures are used for costing all 

business of the using division, subsidiary, or organization under common 

control.

    (f) No depreciation or rental is allowed on property fully 

depreciated by the contractor or by any division, subsidiary, or 

affiliate of the contractor under common control. However, a reasonable 

charge for using fully depreciated property may be agreed upon and 

allowed (but, see 31.109(h)(2)). In determining the charge, 

consideration shall be given to cost, total estimated useful life at the 

time of negotiations, effect of any increased maintenance charges or 

decreased efficiency due to age, and the amount of depreciation 

previously charged to Government contracts or subcontracts.

    (g) Whether or not the contract is otherwise subject to CAS, the 

requirements of 31.205-52 shall be observed.

    (h) In the event of a write-down from carrying value to fair value 

as a result of impairments caused by events or changes in circumstances, 

allowable depreciation of the impaired assets is limited to the amounts 

that would have been allowed had the assets not been written down (see 

31.205-16(g)). However, this does not preclude a change in depreciation 

resulting from other causes such as permissible changes in estimates of 

service life, consumption of services, or residual value.

    (i) A ``capital lease,'' as defined in Statement of Financial 

Accounting Standard No. 13 (FAS-13), Accounting for Leases, is subject 

to the requirements of this cost principle. (See 31.205-36 for Operating 

Leases.) FAS-13 requires that capital leases be treated as purchased 

assets, i.e., be capitalized, and the capitalized value of such assets 

be distributed over their useful lives as depreciation charges or over 

the leased life as amortization charges, as appropriate, except that--

    (1) Lease costs under a sale and leaseback arrangement are allowable 

only up to the amount that would be allowed if the contractor retained 

title, computed based on the net book value of the asset on the date the 

contractor becomes a lessee of the property adjusted for any gain or 

loss recognized in accordance with 31.205-16(b); and

    (2) If it is determined that the terms of the capital lease have 

been significantly affected by the fact that the lessee and lessor are 

related, depreciation charges are not allowable in excess of those that 

would have occurred if the lease contained terms consistent with those 

found in a lease between unrelated parties.



[68 FR 69247, Dec. 11, 2003, as amended at 70 FR 33675, June 8, 2005]