A company acquired a new piece of equipment on January 1, 2009 at a cost of $200,000. The equipment is expected to have a useful life of 10 years, a residual value of $20,000 and is depreciated on a straight-line basis. On January 1, 2011, the equipment was appraised and determined to have a fair value of $190,000 and a residual value of $25,000 and a remaining useful life of 10 years. At what amount should the equipment be reported on the December 31, 2011 balance sheet under the IFRS cost model?

Question

Quizplus · Accepted Answer

Under IFRS cost model, the cost of the equipment is the initial cost less any accumulated depreciation.

Depreciation expense per year = (Cost - Residual value) / Useful life
= ($200,000 - $20,000) / 10 = $18,000 per year

Accumulated depreciation as of December 31, 2011 = Depreciation expense per year x Number of years
= $18,000 x 3 years = $54,000

Book value as of December 31, 2011 = Cost - Accumulated depreciation
= $200,000 - $54,000 = $146,000

Therefore, the equipment should be reported on the December 31, 2011 balance sheet at $146,000.

A Company Acquired a New Piece of Equipment on January