Question

Tristen Company purchased a five-story office building on January 1, 2016, at a cost of $7,200,000. The building has a residual value of $300,000 and a 40-year life. The straight-line depreciation method is used. On June 30, 2018, construction of a sixth floor was completed at a cost of $2,400,000.

Required:
Calculate the depreciation on the building and building addition for 2018 and 2019 assuming that the addition did not change the life or residual value of the building.

Answer 1

Answer:

Depreciation = (Cost of the Asset - Residual Value) / Estimated Useful Life of the Asset
= ($7,200,000 - $300,000) / 40 years
= $172,500 per year

Depreciation per year = $2,400,000 / 37.5 years
= $64,000 per year

Depreciation for 2018 = $64,000 per year x 6/12
= $32,000

Depreciation for 2019 = $64,000 per year x 12/12
=$64,000

Therefore, the depreciation for 2018 and 2019 are $32,000 and $64,000 respectively