Choice "D" is correct. IFRS requires component depreciation. Under component depreciation, the machinery, component, and inspection cost are recognized and depreciated separately: Machinery: ($300,000 - $55,000 - $5,000) / 15 years$240,000 / 15 years$16,000 | Component: $55,000 / 10 years$5,500 | Inspection Cost: $5,000 / 5 years$1,000 | Total annual straight line depreciation$16,000 + $5,500 + $1,000$22,500 |
Choice "b" is incorrect. This is the depreciation expense to be recorded on the machinery separate from the component and inspection cost. The component and inspection cost must also be depreciated.
Choice "c" is incorrect. It is not appropriate to depreciate the total acquisition price of $300,000 over 15 years when the component and inspection have shorter useful lives. Under IFRS component depreciation, the machinery, component, and inspection cost are recognized and depreciated separately.
Choice "a" is incorrect. The cost of the component and the cost of the inspection are part of the acquisition cost of $300,000 and should be subtracted from the acquisition cost of the equipment before depreciating the equipment.
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