Reading 37: Long-lived Assets-LOS d 习题精选 2011, necessary, equipment, useful, center

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Session 9: Financial Reporting and Analysis: Inventories, Long-lived Assets, Income Taxes, and Non-current Liabilities
Reading 37: Long-lived Assets

LOS d: Calculate depreciation expense given the necessary information.

 

 

Novak, Inc. owns equipment with a historical cost of $20,000, a useful life of 5 years, and an estimated salvage value of $5,000. Using the double declining balance method, depreciation expense in Year 3 for this equipment is:

A) $2,880.

B) $2,200.

C) $3,000.

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DDB depreciation in each year is 2/5 of the carrying value at the beginning of the year, until the carrying value reaches the estimated salvage value.

Year 1 DDB depreciation = $20,000 × 2/5 = $8,000
Carrying value = $20,000 – $8,000 = $12,000

Year 2 DDB depreciation = $12,000 × 2/5 = $4,800
Carrying value = $12,000 – $4,800 = $7,200

Year 3 DDB depreciation = $7,200 × 2/5 = $2,880
Because $7,200 – $2,880 = $4,320 would depreciate the equipment below its salvage value, depreciation in Year 3 is limited to $7,200 – $5,000 = $2,200.

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Czernezyk Company buys a delivery vehicle for

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Component depreciation is required under:

A) both IFRS and U.S. GAAP.

B) IFRS, but not U.S. GAAP.

C) U.S. GAAP, but not IFRS.

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IFRS requires firms to use component depreciation, which refers to depreciating the identifiable components of an asset separately. U.S. GAAP permits component depreciation but does not require it.