Reference no: EM132572691
On 1 August 2016, survival purchase machine for R125 000. Machine consists of the following
Engine= R82 400
Expected useful life= 20 800 hours
Residual value = R20000
Pressure =R 42 600
Expected useful life= 10 400 ours
Residual value =R 1000
The components can function independently, but are used as a unit components are independently replaced at the of their useful lives. Depreciation is calculated on the number of hours that the machine is used. The factory manager presented you with the following schedule that indicates the number of hours that the machine of hours that the machine was used.
Year 1 August 2016-28 February 2019=5160 hours cumulative
1 August 2016- 29 February 2020=7500 hours cumulative
During November 2019 after machine was uses for 1560 hours during the financial year pressure pump broke down. A new pressure pump was installed and put into use on 30 November 2019. The cost price of the new pressure pump was 31000 and installation cost incurred amounted to R20000. The new pressure pump has an estimated useful life of 10,000 hours with a Residual value of R20000. Assume the SARS grants a wear and tear allowance of 10 % per annum on the cost of machine on the straight line. Also assume SARS allows installation cost as a tax deduction when it was incurred. Machine is used in the manufacturing of essential services products and the pandemic has had no adverse effect on the estimated future performance of the production capabilities of the machine.
Question 1: Calculate the depreciation expense, derecognition amount and carrying amount of the asset year ended 29 February 2020