Question

A number of major structural repairs completed at the beginning of the cur rent fiscal year at a cost of $1,000,000 are expected to extend the life of a building 10 years beyond the original estimate the building was $8, 190,000, and it has been depreciated by the straight- line method for 50 years. Estimated residual value is negligible and has been ignored The related accumulated depreciation account after the depreciation adjustment at the ena of the preceding fiscal year is $6, 300, 000 The original cost of (a) What has the amount of annual depreciation been in past years? (b) Wat was the original life estimate of the building? (c) To what account should the $1,000,000 be debited? (d) hat is the book value of the building after the extraor dinary repairs have been made? extraordinary repairs have been made? assuning that the repairs were completed at the very beginning of the (e) What is the expected remaining life of the building after the (f) What is the amount of straight-line depreciation for the current year, curient year?

Answer 1

Question a:

​​​​​​Accumulated depreciation for 50 years= $6300000

This accumulated depreciation has been charged for the past 50 years. To find out the yearly depreciation charged, we only need divide the accumulated depreciation by 50.

Yearly depreciation in the past years= 6300000/50= $126000

Question b:

Now that we have found the annual depreciation, we can find the original estimated life by dividing the original cost by the annual depreciation.

Original life estimate= 8190000/126000= 65 years

Question c:

Since the extraordinary repairs resulted in an increase in the useful life of the building, this repair cost should be capitalised meaning that the repair cost of $1000000 is to be debited to the building account.

Question d:

Book value of the building after repairs= 8190000+1000000- 6300000= $2890000

It is assumed that the repairs are incurred at the begging of the current year and hence current year depreciating has not been provided for.

Question e:

We already know the original life estimate to be 65 years. After the repairs it is increased by 10 years and the life estimate becomes 75 years. Depreciation for 50 years has been charged.

Remaining useful life= 75-50= 25 years

Question f:

To find straight line depreciation for the current year after repairs, we only need to divide the remaining book value of the building ($2890000) by the remaining useful life (25 years).

Current year depreciation= 2890000/25= $115600