On March 30, 2011, Calvin Exploration purchased a drilling machine for $840,000. The estimated useful life of the machine is 10 years, and no residual value is anticipated.
An important component of the machine is the drill housing component that will need to be replaced in five years. The $200,000 cost of the drill housing component is included in the $840,000 cost of the machine. Calvin uses the straight-line depreciation method for all machinery. The company’s fiscal year ends on December 31.
Required:
a. Calculate depreciation on the drilling machine for 2011 and 2012 applying the typical U.S. GAAP treatment.
b. Repeat requirement 1 applying IFRS.