Question

A company acquires a bulldozer and its only two components for a total of $500,000 on 1/1/25. The useful life of the bulldozer is 10 years with no salvage value. The treads with a value of $45,000 will need to be replaced every nine years with no salvage value. The blade has a value of $20,000 and needs to be replaced every four years with no salvage value. The company uses the straight-line method to compute depreciation. Under IFRS, what is depreciation expense for 2025?

Answer 1

Answer:

The depreciation expense for 2025 is $50,000.

Explanation:

Straight line method charges a fixed amount of depreciation based on the cost of asset during the period of use.

Here the Bulldozer, the treads and the blades are significant in value and have different consumption pattern, thus they are all depreciated separately.

The Depreciation Expense Calculation is as follows :

Depreciation Expense = (Cost - Residual Value) ÷ Estimated Useful Life

thus,

Depreciation Expense (Bulldozer) = ($500,000 - $45,000 - $20,000) ÷ 10

                                                        = $43,500

Depreciation Expense (Treads)     = ($45,000 - $0) ÷ 10

                                                        = $4,500

Depreciation Expense (Blade)       = ($20,000 - $0) ÷ 10

                                                        = $2,000

Total depreciation expense is       = $43,500 + $4,500 + $2,000

                                                        = $50,000