Question

A. Mava Corp. purchased a warehouse for $3,040,000 on October 1, 2017. The warehouse has
been depreciated using the sum-of-the-years’-digits method with the estimated usage
summarized below:

Useful life 20 years
Residual value $ 205,000

Required:
A1. Calculate the depreciation expense for the first full year of the warehouse’s useful life
from October 1, 2017, to September 30, 2018.
A2. Calculate the depreciation expense for the second full year of the warehouse’s useful
life from October 1, 2018, to September 30, 2019.
A3. Calculate the depreciation expense for the year ended December 31, 2018.

Answer 1

• Working

A	Cost	$      3,040,000.00
B	Residual Value	$          205,000.00
C=A - B	Depreciable base	$      2,835,000.00
1+2+3+4+5+6+7+8+9+10+11+12+13+14+15+16+17+18+19+20	Sum of digits	210

Year	Depreciable base	Formula	Depreciation expense	Accumulated Depreciation	Ending Book Value
1st	$        2,835,000.00	[2835000 x 20/210]	$       270,000.00	$           270,000.00	$ 2,770,000.00
2nd	$        2,835,000.00	[2835000 x 19/210]	$       256,500.00	$           526,500.00	$ 2,513,500.00

• Requirement A1
  Depreciation Expense = $ 270,000 [calculated above]
• Requirement A2
  Depreciation Expense = $ 256500 [calculated above]
• Requirement A3
  Depreciation expense for year ended 31 Dec 2018
  = (9 months depreciation of 1^st year) + (3 months depreciation of 2^nd year)
  = ($270000 x 9/12) + ($256500 x 3/12)
  = 202500 + 64125
  = $ 266,625 Answer