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On March 31, 2018, Susquehanna Insurance purchased an office building for $11,400,000. Based on their relative...

On March 31, 2018, Susquehanna Insurance purchased an office building for $11,400,000. Based on their relative fair values, one-third of the purchase price was allocated to the land and two-thirds to the building. Furniture and fixtures were purchased separately from office equipment on the same date for $1,340,000 and $840,000, respectively. The company uses the straight-line method to depreciate its buildings and the double-declining-balance method to depreciate all other depreciable assets. The estimated useful lives and residual values of these assets are as follows: Service Life Residual Value Building 30 10% of cost Furniture and fixtures 10 10% of cost Office equipment 5 $44,000 Required: Calculate depreciation for 2018 and 2019. (Do not round intermediate calculations.)

Solutions

Expert Solution

On the portion of land we will not charge Depreciation.

Buliding portion=2/3*11400000=7600000

Particular office building furniture office equipment
Cost(a) 7600000 1340000 840000
Life(b) 30 10 5
Rate of depreciation c=(100/b)*2 6.6666666% 20% 40%
Depreciation for 2018(c*a) =d 506666.67 268000 336000
Value at beginning of 2019(a-d)=e 7093333.33 1072000 504000
Depreciation for 2019(e*c) 472888.88 214400 201600

In the double declining method of depreciation we don't sub tract salvage value. Hence salvage or Residual value does not effect calculation.

ekkarill92 answered 2 years ago
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