Choice "A" is correct. IFRS requires component depreciation. Under component depreciation, the equipment, component, and inspection cost are recognized and depreciated separately: Equipment: ($84,000 - $9,000 - $3,000) / 12 years$72,000 / 12 years$6,000 | Component: $9,000 / 6 years$1,500 | Inspection Cost: $3,000 / 3 years$1,000 |
Total annual straight line depreciation$6,000 + $1,500 + $1,000$8,500 Depreciation for July 1, Year 1 - December 31, Year 1$8,500 x 6/12$4,250Choice "c" is incorrect. Under IFRS component depreciation, the equipment, component, and inspection costs are recognized and depreciated separately.
Choice "d" is incorrect. This is the annual depreciation under IFRS. However, the entity only owned the asset for 6 months (July 1 - December 31) in Year 1, so only 6 months of depreciation should be taken: $8,500 x 6/12$4,250.
Choice "b" is incorrect. The cost of the component and the cost of the inspection are part of the acquisition cost of $84,000 and should be subtracted from the acquisition cost of the equipment before depreciating the equipment.
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