Pronghorn Corp. purchased a machine on July 1, 2017, for $32,000. Pronghorn paid
ID: 2408478 • Letter: P
Question
Pronghorn Corp. purchased a machine on July 1, 2017, for $32,000. Pronghorn paid $290 in title fees and a legal fee of $300 related to the machine. In addition, Pronghorn paid $500 in shipping charges for delivery, and paid $600 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 $6,000, and no salvage value. Pronghorn uses straight-line depreciation.
Calculate the 2017 depreciation expense if Pronghorn prepares financial statements in accordance with IFRS. (Do not round intermediate calculation and round answer to 0 decimal places, e.g. 5,275.)
Calculate the 2017 depreciation expense if Pronghorn prepares financial statements in accordance with ASPE. (Do not round intermediate calculation and round answer to 0 decimal places, e.g. 5,275.)
Depreciation expense $____________
Explanation / Answer
Answer
All of the costs involved in getting the machine to the point where it can be used become the cost of the machine to be depreciated.
Depreciation expense in accordance with IFRS:
Depreciation expense = (Asset Value – Residual Value)
Estimated Useful Life
Machine Cost $32,000
Title Fees $290
Legal Fees $300
Shipping Charges $500
Build & wire a platform $ 600
Total Machine Value $33,690
IFRS Method = $33,690 - $6,000
10
= $2,769
Depreciation expense in accordance with ASPE :
Under ASPE, depreciation of an asset is based on the greater of:
10
12
Since, Depreciation is greater in the 1) Method , hence Depreciation expense will be $2,769 in this case also.
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