Depreciation under IFRS problem

  • Creator
    Topic
  • #201638
    Kairos
    Participant

    The answer is B. but can anyone show how it is derived? Also how would the answer differ if the question asked was under GAAP? Thanks!

    A transportation company purchased a passenger bus for $100,000 on January 1, year 1. The company

    expects the bus to be used for 20 years if it follows a maintenance schedule of replacing the engine after

    10 years and replacing the seats every eight years. It estimates that the current cost to replace the engine

    is $25,000 and the current cost to replace the seats is $10,000. The company uses straight-line

    depreciation and the bus has no residual value. The company considers any component equal to or

    greater than 10% of the overall cost to be significant. Under IFRS, how much depreciation expense

    should the company recognize for the bus for the year ended December 31, year 1?

    A. $5,000

    B. $7,000

    C. $7,250

    D. $8,500

Viewing 3 replies - 1 through 3 (of 3 total)
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  • #774246
    Spartans92
    Participant

    hey kairos, in order to derive the answer to the question you have to account for the engine and the seat separately after factoring into the bus cost.

    Bus: 100,000-25,000-10,000 = 65,000/ 20 years = 3250
    Engine: 25000/10 = 2500
    Seat: 10,000/8 = 1250

    Total Depreciation = 2500+1250+3250 = 7000

    BEC - 76
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    3 down 1 more to go. BEC is on the Line 🙁

    BEC- PASS

    #774247
    Lidis
    Participant

    Hi
    Under GAAP, the answer is A
    100,000/20 = 5,000

    #774248
    Kairos
    Participant

    You guys are awesome!! Thank you so much!!!

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