Question

At 30 June 2019, the financial statements of McMaster Ltd showed a building with a cost (net of GST) of $372,000 and accumulated depreciation of $188,000. The business uses the straight-line method to depreciate the building. When acquired, the building's useful life was estimated at 30 years and its residual value at $74,000. On 1 January 2020, McMaster Ltd made structural improvements to the building costing $117,000 (net of GST). Although the capacity of the building was unchanged, it is estimated that the improvements will extend the useful life of the building to 40 years, rather than the 30 years originally estimated. No change is expected in the residual value. Calculate the number of years the building had been depreciated to 30 June 2019.

Answer 1

Calculating the number of years the building had been depreciated to 30 June 2019:

In order to calculate the above requirement, we have to calculate the depreciation charged to the income statement every year and divided the total accumulated depreciation with the same to get the total number of years.

Also, please note that the depreciation every year will be the same because the company follows the Straight-line method.

(A) Cost of Building = $372,000

(B) Residual Value of the Building = $74,000

(C) Value to be depreciated (net of residual value) (A-B) = $298,000

(D) Useful life of building = 30 years

(E) Depreciation per year (C/D) = $ 9,933.33

(F) Accumulated Depreciation (given in the question) = $188,000

(G) Period of depreciation of building to 30 June 2019 (F/E) = 18.92617 or say 19 years

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