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Q11-7IFRS

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Intermediate Accounting (Kieso)
Found in: Page 607

Short Answer

Ortiz purchased a piece of equipment that cost $202,000 on January 1, 2017. The equipment has the following components.

Component

Cost

Residual Value

Estimated Useful Life

A

$70,000

$7,000

10 years

B

50,000

5,000

5 years

C

82,000

4,000

12 years

Compute the depreciation expense for this equipment at December 31, 2017.

Answer

Total depreciation expense is $21,800.

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Meaning of Residual Value

An estimated worth of a fixed asset when it is no longer useful or after its lease term has expired, is known as residual value. The definition of residual value varies per industry, but the essential idea remains the same.

Step 2: Computing depreciation expenses

Component

Calculation

Depreciation Expense

A

$ 6,300

B

9,000

C

6,500

$21,800

Notes:

The formula used in depreciation expense is as shown below.

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