On January 1 2018 the Al Hamsi company purchased a new machine for $ 1,000,000 with an estimated useful life of 4 years. The machine has an electric fan that must be replaced every 2 years at an estimated cost of $200,000. In addition, inspection costs every 3 years amounts to $60,000.

Required:

a) Calculate the depreciation expense for year 1 for the machine using straight line method under IFRS.

b) Calculate the depreciation expense for year 1 for the machine using sum of the years digits under GAAP.

c) Calculate the depreciation expense for year 1 for the machine using double declining balance.

Answer a) IFRS depreciation Years of useful life Annual Depreciation Depreciation Expense 305,000 b) GAAP depreciation expense using sum of the year's digits. Sum of years = 1+2+3+4=10 c) GAAP depreciation expense using double declining balance. (Cost / years of life) x 200% Conclusion