Question

Presented below are the components related to a building that ABC Company purchased for €20,000,000 in January of 2018.

                                    Component                             Useful Life                   Value

                                    Building structure                    50-year life              10,500,000

                                    Building designs etc. 20-year life              6,500,000

                                    Building fixtures 10-year life 3,000,000

Instructions

(a)      Compute depreciation expense for 2018, assuming that ABC uses component depreciation and uses the straight-line method of depreciation.

Assume that the building fixtures were replaced in 5 years at a cost of €1,800,000. Prepare the entry to record the replacement of the old component with the new component.

Answer 1

(a)	Depreciation expense for 2018,		835,000
		Cost	Useful life	Depreciation
	Building structure	10,500,000	50	210,000
	Building designs	6,500,000	20	325,000
	Building fixtures	3,000,000	10	300,000
		20,000,000		835,000
	Depreciation = (Cost - Salvage Value)/Life of the assets
(b)	General Journal	Debit	Credit
	Building fixtures (New)	1,800,000
	Accumulated Depreciation	1,500,000		(300,000 x 5 years)
	Building fixtures (Old)		3,000,000
	Gain on replacement		300,000