Question

1. Describe the critical role of international perspectives in the application of accounting.

2. Improve your skills related to global financial information.

3. Discuss the need for the creation of uniform accounting standards of international application.

On June 30, 2018, ABC Co. purchased a machine for $120,000. The estimated useful life of the machine is 8 years and no residual value. An important component of the machine is a specialized hight-speed drill that will need to be replaced in 4 years. The $20,000 cost of the drill is included in the $120,000 cost of the machine. ABC uses the straight line depreciation method.

Required:

US GAAP

1. Determine the depreciation expense for 2018 and 2019.

IFRS

2. All information remains the same except: suppose ABC depreciates the drill using: units of production. The estimates total units are 150,000. For 2018 and 2019 the units produced was 80,000 and 40,000, respectively .

a. Determine the depreciation expense for 2018 and 2019.

Answer 1

Ans 1,2,3

Comparable accounting standards and accounting principles around the world promote:

Transparency

accountability

efficiency in financial markets.

This enables investors, share holders, banks, financial institutions, potential investors and other market participants and stake holders to make informed economic decisions about investment opportunities and risks and improves capital allocation.

Ans Dep Prob (1)

Since the drill is a major spare part, it is considered as PPE. Depreciation is calculated for machine and spare part separately since useful life is different .

Date of purchase –june 30 ,2018

Cost of drill – 20000

Useful life - 4 yrs

Depreciation for a yr (2019) – 20000/4=5000

Dep for half yr (2018) – 20000/4*184/365=2520.5

Cost of machine – 120000-20000=100000

Useful life - 8 yrs

Depreciation for a yr (2019) – 100000/8=12500

Dep for half yr (2018) – 100000/8*184/365=6301

Dep for 2018:

Spare parts+ Machine – (2520.5+6301)=8821.5

Dep for 2019:

Spare parts+ Machine – (5000+12500)=17500

Ans Dep Prob (2)

If the company depreciates drill using units produced, the depreciation of drill as follows

Estimated total production using the drill – 150000

Production in 2018 – 80000

Production in 2019 – 40000

Production of half yr after june 2018 for which drill is used – 80000/12*6=40000

Cost – 20000

Depreciation 2018 – 20000/150000*40000 =5333.33

Depreciation 2019 – 20000/150000*40000 =5333.33

Note:

@Depreciation under useful life method – cost*period used/total period

@ Depreciation under units of production method – cost*units produced/total production

@in the second part instead of taking 6 months to calculate production after june 2018, we can take number of days ie, 80000/365*184=40000