Bob the Builder purchases a piece of equipment on July 1, Year 5. The equipment has 5-year useful life with $5,000 residual value and 6-year physical life with $600 salvage value. The company pays $10,000 cash down payment and issues a note that requires blended principal and interest payments of $6800 each, due at the end of June in the next four years, starting June 30, Year 6. The prevailing market interest rate for notes of this nature is 4%. The company does not adopt any partial-year depreciation convention and depreciation expense is recognized once at the end of its fiscal year, October 31, using straight-line method. (1) Calculate depreciation expense to be recognized for the equipment on October 31, Year 5, assuming the company follows IFRS. (2) Calculate depreciation expense to be recognized for the equipment on October 31, Year 5, assuming the company follows APSE.
Bob the Builder purchases a piece of equipment on July 1, Year 5. The equipment has 5-year useful life with $5,000 residual value and 6-year physical life with $600 salvage value. The company pays $10,000 cash down payment and issues a note that requires blended principal and interest payments of $6800 each, due at the end of June in the next four years, starting June 30, Year 6. The prevailing market interest rate for notes of this nature is 4%. The company does not adopt any partial-year depreciation convention and depreciation expense is recognized once at the end of its fiscal year, October 31, using straight-line method. (1) Calculate depreciation expense to be recognized for the equipment on October 31, Year 5, assuming the company follows IFRS. (2) Calculate depreciation expense to be recognized for the equipment on October 31, Year 5, assuming the company follows APSE.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Bob the Builder purchases a piece of equipment on July 1, Year 5. The equipment has 5-year useful life with $5,000 residual value and 6-year physical life with $600 salvage value. The company pays $10,000 cash down payment and issues a note that requires blended principal and interest payments of $6800 each, due at the end of June in the next four years, starting June 30, Year 6. The prevailing market interest rate for notes of this nature is 4%. The company does not adopt any partial-year depreciation convention and depreciation expense is recognized once at the end of its fiscal year, October 31, using straight-line method.
(1) Calculate depreciation expense to be recognized for the equipment on October 31, Year 5, assuming the company follows IFRS.
(2) Calculate depreciation expense to be recognized for the equipment on October 31, Year 5, assuming the company follows APSE.
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