Question

3 Existential Products started business in July 1, 2012 with the following purchases: Residual value Depr. Method 6 Land 7 Building 8 Parking Lot, Lighting & Fencing 9 Processing Equipment 10 Office Equipment Useful life $225,000 Indefinite $1,155,000 40 years $56,800 15 years $198,000 10 years $56,000 5 years $175,000 Straight Line $6,580 Double Declining Balance $19,800 Units of Production $8.500 Double Declining Balance 12 At the end of 2018, the company has come to the conclusion that the building will not last 40 years. 13 The estimated useful life should have been 31.5 years with a salvage value of $125,000 15 What is the annual depreciation for the building for 2019? 24,500 17 Original depreciation per year 18 Book value 12-31-18 19 Depreciation for 2019 20 21 The Processing Equipment is rated to run for a total of 60,000 hours based on three shifts in ten years. 22 Prepare a depreciation schedule for land improvements, processing equipment and office equipment 23 Beg BV Depr Accum Depr 12.250 12.250 24 Land Improvements 25 2010 26 2011 27 2012 28 2013 29 2014 30 2015 31 2016 32 2017 33 2018 34 2019 35 2020 36 2021 37 2022 38 2023 39 2024 40 2025 Depr Accum Depr 43 Per hour depreciation 44 Machinery 45 2010 46 2011 47 2012 48 2013 Asset Allocation Hours used Beg BV 2,200 5.900 6,200 5 BOO Asset Impairment Depreciation +

Answer 1

given information

Book value of building at the beginning of the year July 2012=1,155,000$

Useful life=40 years

Salvage value(or)residual value =1,75,000$

Depreciation formula::

=(book value of the asset- residual value)/estimated useful life

Therefore value of depreciation annually

=(1155000-175000)/40

=24,500$ per annum.

Due to the changes in the useful life of the asset decreases in the year 2018, the depreciation value from July 2012 to December 2018::

2012 depreciation for 6 months

=24500*6/12

=12,250$

From 2013-2018(6years)

=24500*6

=147,000$

Total depreciation till 2018:

=12250+147000

=159,250$

Net book value at the beginning of 1st January 2019::

Net book value on July2012:

=Cost of the asset-residual value

=1,155,000-175,000

=980,000$

For 2019 beginning book value of building

=(Net book value on 2012-total depreciation till 2018):

=980,000-159,250

=820,750

At the end of the 2018 estimated useful life of the building has been changed from 40 years to 31.5 years and with residual value of 125000$

Provision in relating to depreciation:

Revised depreciation should calculate by taking into consideration of revised estimated useful life of the asset with prospective effect (instead of retrospective effect*)

Therefore:

Computation of depreciation for the year 2019

=(Book valueat the beginning of the year-residual value)/revised estimated useful life

=(820750-125000)/31.5

=22087$ p.a

*Note

Here there is no need to go for retrospective effect, means no need to change the overall amount of depreciation from the beginning

(And moreover retrospective effect will be applicable in case of changed in method of depreciation only)

Thank you

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