Depreciation and Life Studies

Valuation and Appraisal

Oct 13, 2016

Client:   Windstream, Frontier

Staff:     Bob McKnight, Luis Rodriguez, Charlie Burkhardt, staff

Date:     2016

Model:  CQA Depreciation Model

CQA’s Depreciation Model performs client-specific depreciation studies including selection of forward-looking projection lives, survivor curve shapes, and resulting average service lives and average remaining lives by category of depreciable plant.

The model is capable of producing standard straight-line, whole life depreciation rates, as well as remaining life rates using client-provided or CQA-developed depreciation reserve ratios and net salvage ratios.  The Remaining Life depreciation technique is designed to better provide for the recovery of the client’s undepreciated assets over their remaining lives.

The CQA Depreciation Model also includes the ability to develop Equal Life Group (ELG) depreciation rates as required.  Accrual rates using the equal life group procedure provide cost allocation over the estimated probable life of each subgroup of an account, where the subgroups represent assets with a common life according to the selected survivor curve (i.e., assets living one year according to the survivor curve are depreciated over one year; those living two years are depreciated over two years, etc.).

CQA’s preferred depreciation study process includes an in-depth mortality analysis of the client’s historical data consisting of additions, retirements, adjustments and ending balances by account and by vintage for the latest ten years of activity.  Such data is used in the development of recommended survivor curve shapes and life data for each studied account.  If mortality data is not available, CQA can use industry average curve shapes and projection lives in the absence of this company-specific mortality.

CQA has developed company-specific depreciation rates for over 30 individual companies.

In addition to standard depreciation studies, CQA has conducted client-specific life studies for use in property tax work and other client needs.  These life studies include the development of the estimated average physical and economic lives of the iPhone© and Android© phones.