Reference no: EM132544658
Question - On January 1, 20X5, Sharpe Industries Inc. expanded its drainage pond at a cost of $4,250,800. Of this cost, 65% is attributed to the pond and the remaining 35% is attributed to electrical equipment.
The pond is expected to have a 22-year useful life and a residual value of $100,000. It will be depreciated on a straight-line basis. The electrical equipment is expected to have an eight-year useful life and a residual value of $50,000. However, the company has determined that the electrical equipment will be depreciated on a declining balance basis using a rate of 15%.
The drainage pond includes an obligation to restore the land to its original condition at the end of the pond's 22-year useful life. Sharpe estimates that this obligation will cost $6,500,000 in 22 years. The company uses a discount rate of 8.5% to discount this obligation.
Sharpe follows IFRS. It also applies the half-year rule in calculating depreciation in the year of acquisition and in the year of disposal.
For its December 31, 20X5, fiscal year end, how much depreciation did Sharpe record in total for the pond, the electrical equipment, and the decommissioning obligation?
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