Question

Exercise 11-12 In 1990, Oriole Company completed the construction of a building at a cost of $2,400,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of $72,000 at the end of that time. Early in 2001, an addition to the building was constructed at a cost of $600,000. At that time, it was estimated that 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 $24,000. In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate.

Answer 1

Ans:

Calculation of depreciation from 1990 to 2000
Depreciation=Cost-salvage value / Useful life of asset
=$2,400,000-$72,000/40 Years	$58,200
Calculation of annual depreciation to be charged ,Beginning with 2019 as follows
Book Value (2400,000-(58200*28 Years))	$ 770,400
Less: Salvage value	$ -72,000
	$ 698,400
Remaining Useful life	32 Years
Annual Depreciation	$ 21,825
Depreciation on Additions (600,000-24,000)/30 Years	$ 19,200
Book value of additions ($600,000-($19,200*18 Years)	$254,400
Less: Salvage Value	$ -24,000
	$ 230,400
Remaining Useful life	32 Years
Annual depreciation	$ 7,200
Annual Depreciation to be charged from 2019 =$21,825 +$7200	$29,025