In: Accounting
In 1990, Metlock Company completed the construction of a
building at a cost of $2,300,000 and first occupied it in January
1991. It was estimated that the building will have a useful life of
40 years and a salvage value of $69,000 at the end of that
time.
Early in 2001, an addition to the building was constructed at a
cost of $575,000. At that time, it was estimated that the remaining
life of the building would be, as originally estimated, an
additional 30 years, and that the addition would have a life of 30
years and a salvage value of $23,000.
In 2019, it is determined that the probable life of the building
and addition will extend to the end of 2050, or 20 years beyond the
original estimate.
Compute the annual depreciation to be charged, beginning with 2019.
Annual depreciation to be charged, beginning with 2019 | 27816 | (Rounded off) |
Workings: | ||
Cost | 2300000 | |
Less: Salvage value | 69000 | |
Depreciable cost | 2231000 | |
Useful life | 40 | |
Annual depreciation from 1991 through 2000 | 55775 | / yr. |
Cost | 2300000 | |
Add: Additions | 575000 | |
Total cost | 2875000 | |
Less: Accumulated depreciation from 1991 through 2000 | 557750 | =55775*10 |
Book value, Jan 2001 | 2317250 | |
Less: Salvage value | 92000 | =69000+23000 |
Depreciable cost | 2225250 | |
Useful life | 30 | |
Annual depreciation from 2001 through 2018 | 74175 | / yr. |
Book value, Jan 2001 | 2317250 | |
Less: Accumulated depreciation from 2001 through 2018 | 1335150 | =74175*18 |
Book value, Jan 2019 | 982100 | |
Less: Salvage value | 92000 | =69000+23000 |
Depreciable cost | 890100 | |
Useful life | 32 | =12+20 |
Annual depreciation expense—building | 27816 |