Final answer:
The component depreciation method is used when assets have different useful lives and are dissimilar in nature.
Step-by-step explanation:
The component depreciation method is used when assets have different useful lives and are dissimilar in nature. Under this method, each individual component of the asset is depreciated separately based on its own useful life. This method helps to accurately reflect the decrease in value of each component over time.
For example, let's say a company purchases a machine that consists of multiple components, such as an engine, control panel, and conveyor belt. The engine may have a useful life of 10 years, the control panel may have a useful life of 5 years, and the conveyor belt may have a useful life of 3 years. In this case, the company would use the component depreciation method to depreciate each component separately based on its respective useful life.