Question

deprecio me sot alresu Problem 3 (Depreciation Computation - Addition, Change in Estimate) In 1990, Herman Moore Company completed the construction of a building at a cost of $2,000,000 and occupied it in January 199). It was estimated that the building will have a useful life of 40 years and a salu value of $60,000 at the end of that time. Bary in 2001, an addition to the buildine was constructed at a cost of $500,000. At that time, it was estimate hat 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 $20,000. In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, 0 years beyond the original estimate. Hint: The building would have been depreciated for 28 years at the of this change and the addition would have been depreciated for 18 years at the time of this change. Instructions (a) Using the straight-line method, compute the annual depreciation that would have been charged from 1991 throug 2000. Compute the annual depreciation that would have been charged from 2001 through 2018.

Answer 1

(a) The straight line method for the computation of annual depreciation that have been charged from 1991–2000 is:

($2,000,000 – $60,000) ÷ 40 = $48,500/yr.

(b) The annual depreciation that would have been charged from 2001–2018

Building ($2,000,000 – $60,000) ÷ 40 =    $48,500/yr.

Given that additional 30 years of depreciation for the building so additional is calculated as follows:

Addition ($500,000 – $20,000) ÷ 30 = $16,000/yr.

So the total annual depreciation is $48500+$16000=$64500