[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR31.205-11]

[Page 620-621]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
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 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 
following apply:
    (1) The requirements of 31.205-52 shall be observed.
    (2) 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.
    (3)(i) In the event the contractor reacquires property involved in a 
sale

[[Page 621]]

and leaseback arrangement, allowable depreciation of reacquired property 
shall be based on the net book value of the asset as of the date the 
contractor originally became a lessee of the property in the sale and 
leaseback arrangement--
    (A) Adjusted for any allowable gain or loss determined in accordance 
with 31.205-16(b); and
    (B) Less any amount of depreciation expense included in the 
calculation of the amount that would have been allowed had the 
contractor retained title under 31.205-11(h)(1) and 31.205-36(b)(2).
    (ii) As used in this paragraph (g)(3), reacquired property is 
property that generated either any depreciation expense or any cost of 
money considered in the calculation of the limitations under 31.205-
11(h)(1) and 31.205-36(b)(2) during the most recent accounting period 
prior to the date of reacquisition.
    (h) 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; 71 
FR 36940, June 28, 2006]