Al Hajar Electronics LLC Asset Acquisition and Depreciation

On $1$st April $2022,$ Al Hajar Electronics LLC$,$ a company based in Oman specializing in retailing high$-$quality electronic goods, acquires a new refrigeration system for its main warehouse from CoolTech Solutions. The financial and operational details of the purchase are as follows:

OMR:

$$ List price of the refrigeration system: $62,000$

$$ Import duty: $1,200$

$$ Delivery fees: $1,750$

$$ Installation costs: $6,500$

$$ Pre$-$production testing: $3,600$

$$ Purchase of a four$-$year service agreement with CoolTech Solutions: $5,500$

Additionally, Al Hajar Electronics LLC was granted a trade discount of $15\%$ on the initial list price of the refrigeration system and a settlement discount of $5\%$ if payment was made within $30$ days of purchase. The payment for the refrigeration system was completed on $20$th April $2022.$

The refrigeration system is estimated to have a useful life of $8$ years with a potential salvage value of OMR $6,250$ at the end of its use. The estimated usage is $70,000$ cooling hours over its lifetime.

In the year $2022,$ Al Hajar Electronics LLC uses the refrigeration system for $900$ hours.

 

 

Required:

$1.$ IAS $16$ Depreciation Concept and the Application of the Diminishing Balance Method $(2$ Marks$)$:

$$ Explain the concept of depreciation according to IAS $16$ and how the diminishing balance method would be applied, focusing on the context of Oman.

$2.$ Accounting for the Refrigeration System in Al Hajar Electronics LLC$\text{'}$s $2022$ Financial Statements $(2$Marks$)$:

$$ Describe how the acquisition and subsequent depreciation of the refrigeration system should be recorded in Al Hajar Electronics LLC$\text{'}$s financial statements for the year ended $31$st December $2022.$

$3.$ Calculate Depreciation Charges for Al Hajar Electronics LLC for $2022$ and answer related questions $(8$ Marks Total $1$ mark for each$)$

$$ Using the straight$-$line method $.$

$$ Applying the activity method based on cooling hours for $2022.$

$$ Implementing the sum$-$of$-$the$-$years' digits method for $2022.$

$$ Calculating using the diminishing $($written down$)$ value method for $2022.$

$$ Which Depreciation method provides the highest deduction in the final year of an asset's life?

$$ Which depreciation method produces a constant periodic expense as an asset depreciates?

$$ What is the difference between Depreciation for financial reporting purposes and tax purposes?

$$ Which method provides a larger Depreciation deduction under an accelerated$-$cost recovery system?