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On January 1, 20X1, Mighty Entity pays the fair value of $50,000 for a new piece...

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?

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Expert Solution

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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ekkarill92 answered 2 months ago
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