Question

On March 31, 2021, Susquehanna Insurance purchased an office building for $12,000,000. Based on their relative fair values, one-third of the purchase price was allocated to the land and two-thirds to the building. Furniture and fixtures were purchased separately from office equipment on the same date for $1,200,000 and $700,000, respectively. The company uses the straight-line method to depreciate its buildings and the double-declining-balance method to depreciate all other depreciable assets. The estimated useful lives and residual values of these assets are as follows:

	Service Life	Residual Value
Building	30	10% of cost
Furniture and fixtures	10	10% of cost
Office equipment	5	$30,000

Required:
Calculate depreciation for 2021 and 2022. (Do not round intermediate calculations.)

Depreciation 2021 2022

Building: $180,000 $240,000

Furniture and fixtures:

Office equipment:

Answer 1

		2021	2022
	Building	$            1,80,000	$         2,40,000
	Furniture & Fixtures	$            1,80,000	$         2,04,000
	Office Equipment	$            2,10,000	$         1,96,000
	Working Notes
1	Depreciation for Building under SLM
	Particulars	Amount
	Purchase price(a)	$      1,20,00,000
	Cost of building(a*2/3)(Given)	$         80,00,000
Less:	Residual Value(10% of cost)	$            8,00,000
	Depreciable Value	$         72,00,000
	Useful life	30 years
	Depreciation Expense	$           2,40,000	12 months
	For 9 Months(240000*9/12)	$           1,80,000	9 months
2	Depreciation forFurniture and fixtures under DDM
	Particulars	Amount
	Purchase Price (A)	$         12,00,000
	Useful life	10
	Depreciation Rate (B)	20%
	{(100%/10 years)*2}
	Depreciation Expense(A*B)	$            2,40,000
	For 2021
	Depreciation Expense for 9 months(240000*9/12)	$           1,80,000
	For 2022
	Asset Value as on Jan 1, 2022	$         10,20,000
	($1,200,000-$180,000)
	Depreciation Rate	20%
	Depreciation Expense	$           2,04,000
3	Depreciation for ofice equipment under DDM
	Particulars	Amount
	Purchase Price (A)	$            7,00,000
	Useful life	5
	Depreciation Rate B	40%
	{(100%/5 years)*2}
	Depreciation Expense(A*B)	$            2,80,000
	For 2021
	Depreciation Expense for 9 months	$           2,10,000
	For 2022
	Asset Value as on Jan 1, 2022	$            4,90,000
	($700,000-$210,000)
	Depreciation Rate	40%
	Depreciation Expense	$           1,96,000