An Australian company that reports under International Financial Reporting Standards (IFRS) purchases a plane with an expected useful life of 20 years. All costs are reported in Australian dollars.
- TOTAL cost is A$10 million.
- A$1 million of the total cost is allocated to the plane’s interior (galleys and seating), which is completely refurbished every four years.
- A$4 million of the total cost is allocated to the turbines, which are replaced every eight years.
- No residual value is expected.
If the company uses straight-line depreciation, the depreciation expense for the first full year related to the plane would be closest to:
- A$1,000 thousand.
- A$500 thousand.
- A$750 thousand.
