Reference no: EM132824836
Question - True Dough Systems Inc. (TDS) is a commercial marijuana producer in Perth, Ontario. TDS recently expanded its operation by constructing a new greenhouse building. The building is expected to have a useful life of 20 years and a residual value of $50,000. Building construction began on January 1, 2020, and was completed on August 1, 2020. Costs incurred during the construction of the building were as follows.
January 1, 2020 $520,000
February 1, 2020 $360,000
April 30, 2020 $200,000
August 1, 2020 $350,000
Other capital asset information related to the new building is as follows:
Asset Estimated fair value* Installation costs incurred Useful life Residual value
Lighting system $250,000 $26,000 10 years $14,000
Air filtration system $200,000 $33,000 15 years -
Irrigation system $150,000 $12,500 10 years $20,000
The lighting, air filtration, and irrigation systems were purchased as a package deal for $500,000. The estimated fair value of each system is indicated as if each system was purchased separately. Installation costs were incurred separately.
TDS had the following borrowings during 2020:
-A building construction loan of $500,000 at 7% was taken out on January 1, 2020, and repaid on September 1, 2020.
- A bank loan of $2,000,000 with an interest of 8% was outstanding for the entire 2020 year.
-Bonds payable of $6,000,000 (at par), with an effective annual interest rate of 4%, were also outstanding the entire year.TDS has a December 31 year-end, reports using IFRS, and uses the straight-line method of depreciation. All of the assets were put into use on August 1, 2020.
Required -
a) Calculate the cost of each asset as it would appear on TDS's August 1, 2020, statement of financial position.
b) Determine the depreciation expense related to the building only, for the year ended December 31, 2020.
c) Assume that the irrigation system will need to be replaced on December 31, 2026, at a total cost of $175,000. Provide the journal entry to record the purchase of the new system and the derecognition of the old system.