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Hey, I was wondering if anyone would be able to help me understand this dismantling costs to this particular question: What is the depreciation charge of locomotive engine in statement of profit or loss for the year ended 31 December 20X3?
provided info below:
Kentucky Co purchased a locomotive train on 1 July 20X3. The purchase price of the train was $975,000. The locomotive engine needs to be dismantled at the end of its useful life of 7 years. At 1 July 20X3 the costs of dismantling are estimated to be $150,000 at the end of the life of the engine.The components of train include the seats of the train (which comprises 15% of the purchase price), its exterior (45% of the purchase price) and the locomotive engine (40% of the purchase price).
The discount rate is estimated to be 6%.
Per the exam kit, the PV of dismantling costs is 99,759.
This is the only part of the question I don’t know how to calculate.
Any help would be super appreciated!
Hi,
The dismantling costs are capitalised at their present value and then depreciated. The additional complication here is that the asset comprises different components and so it needs to be split in accordance with the amounts given with each component depreciated over its specific life.
Have a go at the question given the above and see how you get on. Let me know if you need any further help.
Thanks
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