Question
Pharoah Company Ltd. buys equipment on January 1, 2020, for $317,000 cash. The asset is expected to have a useful life of 12 years and
Pharoah Company Ltd. buys equipment on January 1, 2020, for $317,000 cash. The asset is expected to have a useful life of 12 years and a residual value of $47,000. Pharoah prepares financial statements under IFRS.
a-Calculate the amount of depreciation for each of 2020, 2021, and 2022 using the straight-line method.
b-Calculate the amount of depreciation for each of 2020, 2021, and 2022 using the double-declining-balance method.
c-Assume that the equipment consists of an input device with a cost of $50,000, residual value of $5,000, and useful life of 5 years; a processor with a cost of $126,000, residual value of $16,000, and useful life of 10 years; and an output device with a cost of $141,000, residual value of $24,000, and useful life of 12 years. Prepare the journal entry to record the purchase on January 1, 2020.
d-Assume the information given in part (c) above. Also assume that the benefits of the input device and processor are expected to flow to Pharoah evenly over time, but that the output device is expected to provide the greatest benefits in the early years. Calculate the amount of depreciation for 2020 using the most appropriate methods.
e-Assume the information given in part (c) with respect to the cost components. The equipment is expected to provide benefits evenly over time. Also assume that the equipment has a salvage value of $38,000 and a physical life of 14 years. The salvage values of the input device, processor, and output device are $3,000, $14,000, and $21,000, respectively. The physical lives of the input device, processor, and output device are 6 years, 12 years, and 14 years, respectively. Calculate the amount of depreciation for 2020, 2021, and 2022 using the straight-line method. Pharoah Company Ltd. prepares financial statements under ASPE.
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