Reference no: EM132737607

Ariana Limited acquired a machine on May 1, 2018 for $60,500. Installation costs for the machine was $1,000. On May 1, 2019, in order to reduce operating costs, a custom extension was added to the machine resulting in an expenditure to the company of $8,520. The original residual value was $3,900. Due to the extension, the residual value has been changed to $4,500. Also, total estimated useful life has been changed from total life of 10 years to total life of 13 years.

• On March 1, 2020, Ariana Limited purchased a new machine with a market value of $69,900. As part of this acquisition, the company traded in its old machine (which had a fair value of $55,000) and paid $14,000 in cash. They also paid $500 in cash for freight costs for the new machine.
• Assume a December 31 year end. The company uses IFRS.

Required: Answer the next three questions using the above information.

Problem 1: What is the new Depreciation calculation on May 1, 2019? Show all your work.

Problem 2: What is depreciation expense for old machine in 2018, 2019, and 2020?

Problem 3: Record the journal entry to record the exchange of assets transaction on March 1, 2020 (Assume there is commercial substance)