In: Accounting
On January 1, 20X1, Mighty Entity pays the fair value of $50,000 for a new piece of machinery with an estimated useful life of 8 years. The machine has a drum that must be replaced every four years and costs $20,000 to replace. Continued operation of the machine requires an inspection every four years after purchase and the inspection cost is $4,000. Under IFRS, what is the depreciation expense of year 2?
Fair value of machinery | Fair value of Drum | |
$ 30,000 | $ 20,000 | |
Life | 8 years | 4 years |
Depreciation for one year | $ 3,750 | $ 5,000 |
Total depreciation | $ 8,750 |
Drum and Machinery will be considered separate assets owing to their different useful lives and inspection cost doe not represent any asset.
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