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Chapter 11: Q11-8IFRS (page 608)

Tan Chin Company purchases a building for \(11,300,000 on January 2, 2017. An engineer’s report shows that of the total purchase price, \)11,000,000 should be allocated to the building (with a 40-year life), \(150,000 to 15-year property, and \)150,000 to 5-year property. No residual (salvage) value should be considered. Compute depreciation expense for 2017 using component depreciation.

Short Answer

Expert verified

Answer

The total depreciation expense is $315,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Depreciation

In accounting, depreciation refers to an expense incurred on an intangible asset due to corrosion and abrasion. A firm may adopt various methods for computing depreciation to reflect the true and accurate value of an asset.

02

Computing depreciation expense

Component

Calculation

Depreciation Expense

Building

$11,000,000−040

$275,000

15-year property

$150,000−015

10,000

5-year property

$150,000−05

30,000

$315,000

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Most popular questions from this chapter

Describe cost depletion and percentage depletion. Why is the percentage depletion method permitted?

(Depletion Computations—Timber) Stanislaw Timber Company owns 9,000 acres of timberland purchased in 2006 at a cost of \(1,400 per acre. At the time of purchase, the land without the timber was valued at \)400 per acre. In 2007, Stanislaw built fire lanes and roads, with a life of 30 years, at a cost of \(84,000. Every year, Stanislaw sprays to prevent disease at a cost of \)3,000 per year and spends \(7,000 to maintain the fire lanes and roads. During 2008, Stanislaw selectively logged and sold 700,000 board feet of timber of the estimated 3,500,000 board feet. In 2009, Stanislaw planted new seedlings to replace the trees cut at a cost of \)100,000.

Instructions

  1. Determine the depreciation expense and the cost of timber sold related to depletion for 2008.
  2. Stanislaw has not logged since 2008. If Stanislaw logged and sold 900,000 board feet of timber in 2019, when the timber cruise (appraiser) estimated 5,000,000 board feet, determine the cost of timber sold related to depletion for 2019.

Jurassic Company owns equipment that cost \(900,000 and has accumulated depreciation of \)380,000. The expected future net cash flows from the use of the asset are expected to be \(500,000. The fair value of the equipment is \)400,000. Prepare the journal entry, if any, to record the impairment loss.

Distinguish among depreciation, depletion, and amortization.

Toro Co. has equipment with a carrying amount of \(700,000. The value-in-use of the equipment is \)705,000, and its fair value less costs of disposal is $590,000. The equipment is expected to be used in operations in the future. What amount (if any) should Toro report as an impairment to its equipment?
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