39. Jade Company acquired a new milling machine on April 1, 2010. The machine has a special

component that required replacement before the end of the useful life. The asset was originally

recorded in two accounts, one representing the main unit and the other for the special

component. Depreciation is recorded by the straight line method and residual value is

disregarded.

On April 1, 2016, the special component is scrapped and is replaced with a similar component.

This new component is expected to have a residual value of approximately 20% of cost at the

end of the useful life of the main unit, and because of materiality, the residual value will be

considered in calculating depreciation.

Main milling machine:

Purchase price in 2010 7,500,000

Residual value 100,000

Estimated useful life 10 years

First special component:

Purchase price 1,200,000

Residual value 60,000

Estimated useful life 6 years

Second special component:

Purchase price 2,000,000

Residual value (20% x 2,000,000) 400,000

What is the total depreciation for 2016?

a. 1,100,000

b. 1,087,500

c. 1,350,000

d. 1,175,000