Question

On January 1, year one, an entity acquires a new piece of machinery for $100,000 with an estimated useful life of 10 years. The machine has a drum that must be replaced every five years and costs $20,000 to replace. Also included in the cost of the machine is an inspection fee of $8,000. Continued operations of the machine require an inspection every four years after purchase. The company uses the straight-line method of depreciation. Under IFRS what is the depreciation expense for year one?

Answer 1

Answer:

$13,200

Explanation:

Under International Financial Reporting Standards (IFRS) each asset component must be depreciated separately. So we must break down the $100,000 purchase price into:

total depreciable value            expected life       yearly depreciation

$72,000                                      10 years                     $7,200

$20,000                                       5 years                     $4,000

$8,000                                         4 years                     $2,000  

total depreciation year 1                                              $13,200