Asset componentization essentially involves the separation of an asset into its various components in the accounting books. This allows companies to account each component as an individual asset and take advantage of difference in physical and economic life of individual components of asset. 

By using different rates to depreciate the assets based on their physical life, those with a shorter life are depreciated with higher rates as compared to assets with longer lives. Normally, an asset would be considered as the sum total of its parts, and the life of the asset would be based on the total useful life of the asset as a whole. However, in the new Companies Act 2013, it is clearly stated,

Organizations whether product or service-oriented, for-profit or non-profit, all have assets that they need to buy, deploy and utilize in order to generate output, turnover or outcomes that provide value. Machinery, furniture, equipment of various types – all fixed assets have a specific life and depreciation cycle. 

The objective of any firm is to achieve maximum productivity and asset value realization in order to build profitability. Timely tracking, care and maintenance therefore become essential for the continued use of these assets.

“Useful life specified in Part C of the Schedule is for whole of the asset. Where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately”