Question

in its first year of business, atc company purchased land, a building, and a equipment on november 20 2016 for november 700000 in total. The land was valued 338000 and building at 262000 and the equipment at 150000. Additional information on the depreicable asset follows:

Assest Residual Value Useful life in years Depriciation Method

Building 15,000 60months residual value Straight line

Equipment 15,000 8months residual value Double diminishing balance

Instructions:

a. Allocate the purchase cost of the land, building and equipment to each of the asset,

b. atc has a december 31 fiscal year and is trying to decide how to calculate depriciation for asset purchased during the year. Calculate the depreication expense for the building and equipment for 2016 and 207 assuming

1. depreciation is calculated to the nearest month

2. a half year depriciation is recorded in the year of the acquisition

c. Which policy should atc follow in the year of acquisition recordsing depriciation to the nearest month or revcording half year of depricitaiom of the depriciation.

Answer 1

	Land	Building	Equipment
Note: Land is not a depreciable asset, hence deprecaition is not calculated
Asset purchase Price Allocation	315,466.67	244,533.33	140,000.00
Methodology used:
for Land(338000/750000)*700000
for Building (262000/750000)*700000
for Equipment(150000/750000)*700000
Calculation of depreciable Amount
Asset value (as above)	315,466.67	244,533.33	140,000.00
(-) Residual value	NA	15,000.00	15,000.00
Depreciable Amount	NA	229,533.33	125,000.00
Depreciation for 2016
Method 1 - Depreciaton is calculated to the nearest Month	NA	3,825.56	15,625.00
In this case, for 2016, one month (december) depreciation to be calculated)
Depreciation for 2017		3825.56	13,671.88
Building - Straing line - Same amount every year
Equipment - Diminshing balance - (125000-15625)/8
Method 2 - Half year depreciation in the year of acquisition		22,953.33	93,750.00
Building (229533.33/60)*6
Equipment (125000/8)*6
Depreciation for 2017:		45,906.67	7,812.50
Building (229533/60)*12
Equipment

Depreciation Method:

In the year of acquisition, the comany should account for half year depreciation.