Question

To add to his growing chain of grocery stores, on January 1, 2016, Danny Marks bought a grocery store of a small competitor for $520,000. An appraiser, hired to assess the acquired assets’ values, determined that the land, building, and equipment had market values of $200,000, $150,000, and $250,000, respectively.

Required:

Danny plans to depreciate the operating assets on a straight-line basis for 20 years. Determine the amount of depreciation expense for 2016 on these newly acquired assets. You can assume zero residual value for all assets.

Answer 1

• Working

Allocation of Total Cost	Appraised Value	% of total appraised value	Total cost of acquisition	Apportioned Cost
Land	$                           200,000.00	33.3%	$                   520,000.00	$                                      173,333.33
Building	$                           150,000.00	25.0%	$                   520,000.00	$                                      130,000.00
Equipment	$                           250,000.00	41.7%	$                   520,000.00	$                                      216,666.67
Total	$                           600,000.00	100%		$                                      520,000.00

---Building

A	Cost	$          130,000.00
B	Residual Value	$                           -
C=A - B	Depreciable base	$          130,000.00
D	Life [in years]	20
E=C/D	Annual SLM depreciation	$              6,500.00

--Equipment

A	Cost	$          216,667.00
B	Residual Value	$                           -
C=A - B	Depreciable base	$          216,667.00
D	Life [in years]	20
E=C/D	Annual SLM depreciation	$            10,833.35

• Depreciation expense for 2016
  >Land = $ 0
  >Builidng = $ 6500
  >Equipment = $ 10833