Question

At the beginning of 2016, Robotics Inc. acquired a manufacturing facility for $12 million. $9 million of the purchase price was allocated to the building. Depreciation for 2016 and 2017 was calculated using the straight-line method, a 25-year useful life, and a $1 million residual value. In 2018, the company switched to the double-declining-balance depreciation method.

What is depreciation on the building for 2018?

Answer 1

• Working

A	Cost	$      9,000,000.00
B	Residual Value	$      1,000,000.00
C=A - B	Depreciable base	$      8,000,000.00
D	Life [in years]	25
E=C/D	Annual SLM depreciation	$          320,000.00

--2016 Depreciation = $ 320000
--2017 Depreciation = $ 320,000

--Total Accumulated Depreciation at the time of revision of estimate = 320000 + 320000 = $ 640,000

--Book value at the time of revision = 9000000 – 640000 = $ 8,360,000

A	Book value at the beg of 2018	$      8,360,000.00
B	Residual Value	$      1,000,000.00
C=A - B	Depreciable base	$      7,360,000.00
D = 25 years – 2 years passed	Remaining Life [in years]	23
E=C/D	Annual SLM depreciation	$          320,000.00
F=E/C	SLM Rate	4.35%
G=F x 2	DDB Rate	8.70%

• Depreciation on Building for 2018 = $ $ 8,360,000 x 8.70%
  = $ 727,320 Answer