Novak Company constructed a building at a cost of $2,750,000 and occupied it beginning in January...
Novak Company constructed a building at a cost of $2,750,000 and
occupied it beginning in January 2001. It was estimated at that
time that its life would be 40 years, with no salvage value.
In January 2021, a new roof was installed at a cost of $375,000,
and it was estimated then that the building would have a useful
life of 25 years from that date. The cost of the old roof was
$200,000.
What amount of depreciation should be charged for the year
2021?
| Depreciation for the year 2021 (Assume the cost of the old roof is removed) | $
|
|
| Depreciation for the year 2021 (Assume the cost of the new roof is debited to accumulated depreciation - building) | $
|
Homework Answers
| Depreciation on Building occupied on 2001 =$2,750,000 / 40 years =$68,750 | |
| Cost of old roof | $2,00,000 |
| Less:Accumulated Depreciation($200,000*20/40) | $1,00,000 |
| Loss on disposal of old roof | $1,00,000 |
| Part A-Assume that the cost of old roof is removed | |
| Building($2,750,000-$200,000+$375,000) | $29,25,000 |
| Less:Accumulated Depreciation($68,750*20 - $100,000) | $12,75,000 |
| Net cost of Building | $16,50,000 |
| Remaining useful life | 25 Years |
| Depreciation-2021($1,650,000/25 years) | $66,000 |
| Part B-Assume that the cost of new roof is debited to accumulated depreciation | |
| Book value of Building prior to replacement of roof | 1375000 |
| [$2,750,000 - ($68,750*20)] | |
| Cost of New roof | 375000 |
| Net cost of Building | 1750000 |
| Remaining useful life | 25 Years |
| Depreciation-2021($1,750,000/25 years) | $70,000 |
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