The following information relates to question 11.

A plant costs C100 000.  This plant includes 3 separate parts:

·         part A with a cost of C48 000,

·         part B with a cost of C2 000, and

·         part C with a cost of C50 000. 

The cost of part A and part C are each considered to be significant relative to its total cost of C100 000 whereas the cost of part B is considered to be insignificant. 

Although the cost of part B is considered to be insignificant, this part is critical (i.e. very significant from a practical perspective) to the effective running of the plant. 

The useful life and method of depreciation of part B is similar to the useful life and method of depreciation of Part C.

The method of depreciation appropriate for part A is different to the method of depreciation appropriate for parts B and C.

Indicate whether the following is true or false:

The cost of Part A and Part C must each be depreciated separately since each of these parts has a cost that is significant relative to the total cost of the plant. The cost of Part B must be expensed.