Part 1

On July 2, 2022, Vicuna Inc. purchased equipment for $720,000. This equipment has an estimated useful life of six years and an estimated residual value of $30,000. Depreciation is taken for the portion of the year the asset is used.

a) Calculate depreciation expenses for 2022 and 2023 using the

1. double-declining-balance method.

2. straight-line method

b) Assume Vicuna is also considering using straight-line depreciation. Which method of depreciation do you think Vicuna would prefer to use, either the double declining balance method or the straight-line method and why? Provide any necessary calculations to support your rationale. (3 marks)

Part 2

Explain the core difference between the rational entity model (IFRS) and the cost recovery impairment method (ASPE).