Question

In: Accounting

A building acquired at the beginning of the year at a cost of $1,450,000 has an estimated residual value of $300,000 and an estimated useful life of 10 years.

A building acquired at the beginning of the year at a cost of $1,450,000 has an estimated residual value of $300,000 and an estimated useful life of 10 years.

Determine (a ) the depreciable cost (b)the straight line  rate (c) the annual straight line depreciation

Solutions

Expert Solution

Straight line depreciation : According to the straight line method of depreciation, an asset's anticipated useful life is extended by the same amount of depreciation each year. The following formula can be used to determine the asset's depreciation cost using residual value

Depreciation cost = Cost of the asset - Residual value / Estimated life of the asset

(a) Calculation of depreciable cost 

Depreciable cost = Cost  - Residual value

                           = $14,50,000 - $3,00,000

                           = $11,50,000

(b) Calculation of Straight line rate

Straight line rate =  100% / Estimated useful life 

                            = 100% / 10

                            = 10%

(c) Calculation of Annual Straight line Depreciation

Annual Straight line Depreciation = Depreciation cost  x Straight line rate

                                                      = $11,50,000 x 10%

                                                      = $1,15,000

                                                 

                                                      

(a) Therefore, the depreciable cost of the building is $11,50,000

(b) Therefore, the straight line rate is 10%

(c)Therefore, the annual straight line depreciation is $1,15,000

balaji rao answered 2 years ago
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