On June 30, 2012, Quarker State purchased a drilling machine for $840,000. The e

Question

On June 30, 2012, Quarker State purchased a drilling machine for $840,000. The estimated useful life of the machine is 10 years, and no residual value is anticipated. An

important component of the machine is the drill housing component that will need to

be replaced in five years. The $200,000 cost of the drill housing component is included

in the $840,000 cost of the machine. Quarker State uses the straight-line depreciation

method for all machinery. The company’s fiscal year ends on December 31.

Required:

a. Calculate depreciation on the drilling machine for 2012 and 2013 applying the

typical U.S. GAAP treatment.

b. Repeat requirement 1 applying IFRS.

Explanation / Answer

Solution.

A. Calculation of depreciation of drilling machine for 2012 and 2013.

Straight Line= Cost Today-Future Value/Time.

= $840,000 - 0 / 10 = $84,000

$200,000 is shunk cost consider by U.S. GAAP.

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