ABC Aerospace Inc.adheres to IFRS and applies component accounting to its major long-lived asset categories.Accordingly,the following data pertain to the company's fleet of test aircraft as at December 31,2013 (in millions $) : $\begin{array} { l l l l } \text { Category } & \underline { \text { Cost } } & \text { Accumulated Depreciation } & \text { Net Book Value } \\\text { Avionics } & \$ 100 & \$ 48 & \$ 52 \\\text { Fuselage \& Wings } & \$ 200 & \$ 120 & \$ 80 \\\text { Aircraft Engines } & \$ 20 & \$ 16 & \$ 4\end{array}$ Additional information includes the following: The avionics have a salvage value $2 and a remaining useful life of ten years and are depreciated on a straight-line basis.
Both the fuselage and wings and aircraft engines are depreciated at a declining rate of 25%.
On July 1^st,2014,the aircraft's engines were all disposed of for $1.5 million.On that same date,new engines were purchased in the amount of $10 million with a useful life of 20 years and no salvage value.The new engines are to be depreciated on a straight-line basis.What is the carrying value of ABC's aircraft engines on December 31,2014?

Question

ABC Aerospace Inc.adheres to IFRS and applies component accounting to its major long-lived asset categories.Accordingly,the following data pertain to the company's fleet of test aircraft as at December 31,2013 (in millions $) :

\begin{array} { l l l l } \text { Category } & \underline { \text { Cost } } & \text { Accumulated Depreciation } & \text { Net Book Value } \\\text { Avionics } & \$ 100 & \$ 48 & \$ 52 \\\text { Fuselage \& Wings } & \$ 200 & \$ 120 & \$ 80 \\\text { Aircraft Engines } & \$ 20 & \$ 16 & \$ 4\end{array}

Additional information includes the following: The avionics have a salvage value $2 and a remaining useful life of ten years and are depreciated on a straight-line basis.
Both the fuselage and wings and aircraft engines are depreciated at a declining rate of 25%.
On July 1^st,2014,the aircraft's engines were all disposed of for $1.5 million.On that same date,new engines were purchased in the amount of $10 million with a useful life of 20 years and no salvage value.The new engines are to be depreciated on a straight-line basis.What is the carrying value of ABC's aircraft engines on December 31,2014?

Quizplus · Accepted Answer

The carrying value of the aircraft engines on December 31, 2014 is $9,750,000. This is calculated as follows:Cost of new engines = $10,000,000Accumulated depreciation on old engines (7.5 years x $16 million / 20 years) = $6,000,000Proceeds from disposal of old engines = $1,500,000Carrying value of aircraft engines on December 31, 2014 = $10,000,000 - $6,000,000 + $1,500,000 = $9,750,000

ABC Aerospace Inc Additional Information Includes the Following: the Avionics Have a Salvage