< Check My Work A company may apply composite depreciation to assets that are related but have different service lives or residual values. It uses similar procedures to group depreciation, as follows: The company combines the assets in one asset account and depreciates them accordingly. The company uses one accumulated depreciation account. The company does not recognize a gain or loss on each item retired. The company recognizes a net gain or loss when it retires the final asset. . Example: Assuming straight-line depreciation, you should compute the composite depreciation rate as follows: Asset A B C Total Cost $25,000 13,000 12,000 $50,000 Residual Value $5,000 1,000 $6,000 Depreciation Rate = $7,000/ $50,000 = 14% Life 10 Years 6 Years 4 Years Annual Depreciation $2,000 2,000 3,000 $7,000 You should compute depreciation expense by multiplying 14% by the cost of the assets remaining in service until the book value equals the estimated residual value ($6,000 in this example)