Reference no: EM132729785

On March 1, 2020, 3 different companies purchase identical fibre laser cutting machines to use in manufacturing their products. Each company purchases the machine for $60,400.

Information regarding each company's policy for depreciating the laser cutting machine follows:

• Twilight Corporation Daylight Company Poly Sask Co.
• Depreciation method Straight-line Double-declining balance Units-of-production
• Estimated useful life 10 years 5 years 15,100 units
• Residual value $9,060 $2,500 $8,800
• Each company follows IFRS and has a fiscal year end of December 31.

Required:

Problem 1: Calculate depreciation expense for the machine for each of the above companies for the year ended December 31, 2020. Assume that during the 2020 year, Poly Sask Co. manufactures 2,201 units with the new machine.

Problem 2: Why would each of these companies depreciate the same equipment using different: (a) methods of depreciation, (b) useful lives, and (c) residual values? Describe at least two possible explanations.

Problem 3: From the perspective of management, which of the 3 above depreciation methods would you prefer to use? State the reason for your choice. Consider the impact of the depreciation policy on the income statement.