Problem
Part I
On July 2, 2022, Vicuna Inc. purchased equipment for $720,000. This equipment has an estimated useful life of six years and an estimated residual value of $30,000. Depreciation is taken for the portion of the year the asset is used.
1) Calculate depreciation expenses for 2022 and 2023 using the
a) double-declining-balance method.
b) straight-line method
2) Assume Vicuna is also considering using straight-line depreciation. Which method of depreciation do you think Vicuna would prefer to use, either the double declining balance method or the straight-line method and why? Provide any necessary calculations to support your rationale. (3 marks)
Part II
Explain the core difference between the rational entity model (IFRS) and the cost recovery impairment method (ASPE).