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An entity purchase an aircraft that has an expected useful life of 20 years with no residual value. the aircraft requires substantial overhauls at the end of years 5, 10, 15.the aircraft cost $25 million and the $5 million of this figure is estimated to be attributable to the economic benefits that are restored by the overhauls.
calculate the annual depreciation charge for the years 1-5 , and 6-10.
SALUTON:
the aircraft is treated as two separate components for depreciation purposes
years 1-5
Initial $5million depreciated over 5 years $1 million
balance $20 million depreciated over
20 years useful life of aircraft $1 million
depreciation charge PA $2 million
Years 6-10
overhaul $6 million depreciated over 5 years $ 1.2 million
aircraft depreciation $ 1 million
depreciation charge pa $ 2.2 million
My question is how the overhaul cost will be 6 million after 5 years?I can’t see it either! As I read your post my immediate reaction was to ask “Where has 6 come from?”
Just check again that you have not missed anything from the question. If you’re happy that it’s complete, give me a reference to the source and maybe I can look at it in the flesh, so to speak. Is it a past exam question?
zeeshan: Sorry, but please can you change your picture? The ACCA get terribly upset at their logo being used by others.
Hello,
I
am not sure that iam allowed to write here but I know the answer:)“When the first overhaul is completed at the end of year 5 at a cost of, say, $6 million, then this cost is capitalised and depreciated to the date of the next overhaul:”
This is the condition of the task. It is not a calculation.
Kalinchetooo, are you telling me that what you have written is included within the original question printed in the Kaplan F7 text?
Yes…”at a cost of, say, $6 million,” – this is the clue…It is in the Kaplan text published in 2014
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