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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
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