Question

On June 30, 2021, Rosetta Granite purchased equipment for $134,000. The estimated useful life of the equipment is eight years and no residual value is anticipated. An important component of the equipment is a specialized high-speed drill that will need to be replaced in four years. The $20,000 cost of the drill is included in the $134,000 cost of the equipment. Rosetta uses the straight-line depreciation method for all equipment.

Required:
1. Calculate depreciation for 2021 and 2022 applying the typical U.S. GAAP treatment.

	2021	2022
Depreciation (GAAP)

2. Calculate depreciation for 2021 and 2022 applying IFRS.

	2021	2022
Depreciation (IFRS)

Answer 1

	2021	2022
Depreciation (GAAP)	$8,375	$16,750
(cost of the asset - salvage value) / life of asset
($134,000 - 0)/8 years
Depreciation (IFRS)	$9,625	$19,250
($114,000 - 0)/8 years , ($20,000/4)
Note: When an item of property, plant, and equipment is comprised of significant
parts that have different useful lives, as is the case for an airplane, the asset must
be split into components and each component must be depreciated separately.