Question

On March 10, 2023. Headlands Limited sold equipment that it bought for $134,640 on August 20,2016 . It was originally estimated that the equipment would have a useful life of 12 years and a residual value of $12,000 at the end of that time, and depreciation has been calculated on that basis. The company uses the straight-line method of depreciation and prepares its financial statements under IFRS. Calculate the depreciation charge on this equipment for 2016 and for 2023 , and the total charge for the period from 2017 to 2022, inclusive, under each of the following six assumptions for partial periods: (Round answers to 0 decimal places, eg. 5,275) 1. Depreciation is calculated for the exact period of time during which the asset is owned. (Use 365 doys for your base) 2. Depreciation is cakculated for the full year on the January 1 balance in the asset account. 3. Depreciation is calculated for the full year on the December 31 balance in the asset account. 4. Depreciation for a half year is charged on plant assets that are acquired or disposed of during the year. 5. Depreciation is calculated on additions from the beginning of the month following their acquisition and on disposals to the beginning of the month following the disposal 6. Depreciation is calculated for a full period on all assets in use for over half a year, and no depreciation is charged on assets in use for less than half a year. (Use 365 days for your base.)

Answer 1

The equipment bought by Headlands Limited for $134,640 with a 12-year useful life and $12,000 residual value incurs different depreciation expenses depending on the assumption. Annual depreciation is $10,220, with variations for the acquisition year 2016 and disposal year 2023. The total depreciation from 2017 to 2022 is $61,320 for all assumptions except the first, which requires exact day calculation.

Step-by-step explanation:

On March 10, 2023, Headlands Limited sold equipment that it bought for $134,640 on August 20, 2016. The equipment was originally estimated to have a useful life of 12 years with a residual value of $12,000. Using the straight-line method of depreciation, we first calculate the annual depreciation expense by subtracting the residual value from the cost and then dividing by the useful life: ($134,640 - $12,000) / 12 years = $10,220 per year.

1. Under the first assumption, where depreciation is calculated for the exact period the asset is owned, we prorate the annual expense for the number of days in use during the year for 2016 and 2023.
2. For the second assumption, the depreciation charge is
   the full annual amount, $10,220, for both 2016 and 2023.
3. The third assumption also results in a full annual depreciation charge of $10,220 for each year.
4. In the fourth case, a half-year's depreciation of $5,110 ($10,220 / 2) is charged for 2016 and 2023.
5. For the fifth assumption, depreciation begins from the month following acquisition, and ends at the beginning of the month of disposal. We calculate depreciation from September 2016 and until March 2023.
6. Finally, under the sixth assumption, if the equipment is used for over half a year, full depreciation is charged. Otherwise, no depreciation is recorded.

The total depreciation for the period 2017 to 2022 would typically be the full annual amount multiplied by the number of years, which in this case is 6 years, resulting in a total of $61,320 ($10,220 x 6).