Question

Sheffield Corp. purchased a machine on July 1, 2020, for $30,975. Sheffield paid $210 in title fees and a legal fee of $175 related to the machine. In addition, Sheffield paid $590 in shipping charges for delivery, and $450 to a local contractor to build and wire a platform for the machine on the plant floor. The machine has an estimated useful life of 10 years, a total expected life of 12 years, a residual value of $6,300, and no salvage value. Sheffield uses straight-line depreciation.

Calculate the 2020 depreciation expense if Sheffield prepares financial statements in accordance with IFRS.

Depreciation expense

$enter the Depreciation expense in dollars

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Calculate the 2020 depreciation expense if Sheffield prepares financial statements in accordance with ASPE.

Depreciation expense

$enter the Depreciation expense in dollars

Answer 1

Answer:

A) Depreciation Expense as per IFRS:

Total cost = 30,975 + 210 + 175 + 590 + 450

= 32,400

Residual Value = 6,300

Estimated Useful Life = 10 years

Depreciation = (Cost - Residual Value)/ Estimated Useful Life

= (32,400 - 6,300)/10

= 2,610

As the machine purchased on july 1, 2020. So the depreciation calculated for 6 months

Depreciation = 2,610 /2 = 1,305

Therefore 2020 Depreciation Expense is $ 1,305

B) Depreciation Expense as per ASPE:

Total cost = 30,975 + 210 + 175 + 590 + 450

= 32,400

Residual Value = 6,300

Estimated Useful Life = 12 years

Considering Greater value from the following:

Depreciation = (Cost - Residual Value)/ Estimated Useful Life

= (32,400 - 6,300)/12

= 2,175

Depreciation = (Cost - Residual Value)/ Estimated Useful Life

= (32,400 -0)/12

= 2,700

Therefore 2020 Depreciation Expense is $ 2,700 as it is a greater value.

As the machine purchased on july 1, 2020, so, calculate the depreciation for 6 months.

Depreciation = 2,700/2 = $1,350

Note:

In this ASPE, Depreciation must consider the greater value of

1) Cost less Salvage Value for Expected Life.

2) Cost less Residual Value for Expected Life.