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On January 1, 2011, Fredo Inc.purchased equipment with a cost of €2,550,000, a useful life of
15 years and no salvage value.The company uses straight-line depreciation.At December 31, 2011, an independent appraiser determines that the fair value of the equipment is €2,500,000 Fredo prepares financial statements using IFRS and elects to revalue the asset.
-The 2012 (second year) income statement will report depreciation expense for the equipment of

Question

Quizplus · Accepted Answer

IFRS allows revaluation of property, plant, and equipment. The revaluation increases the carrying amount of the equipment to fair value. Depreciation expense is calculated based on the revalued carrying amount. In this case, the revalued carrying amount is €2,500,000. The useful life remains 15 years. Therefore, the annual depreciation expense is €2,500,000 / 15 = €166,667.

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