Question

BestCare HMO, an investor-owned company, constructed a new building to replace its outdated facility. The new building was completed on January 1, 2015, and Bright Horizons began recording depreciation immediately. The total cost of the new facility was $12,000,000, comprisingla) 56 million in construction costs and (b) 56 million for the land. Bright Horizons estimated that the new facility would have a useful life of 15 years. The salvage value of the building at the end of its useful life was estimated to be $1,000,000 A. Using the straight-line method of depreciation, calculate annual depreciation expense on the new facility. + 3. Assuming a 40 per cent income tax rate, how much did Bright Horizons save in income taxes for the year ended December 31, 2015, as a result of the depreciation recorded on the new facility e., w

Answer 1

a) Calculation of depreciattion expenses for a year. Total cost of building facility = $ 12,000,000.00 Less:Cost of land = $ 6,000,000.00 Cost of building = $ 6,000,000.00 Note:Land is a non depreciable asset therefore while computing depreciation of a building cost of land should be deducted from the total cost of building if land's cost included in it. Depreciation = (Cost of building - Salvage value) Useful life Depreciation = (6000000 - 1000000) 15 Depreciation = $333,333.33 b) Savings in come tax 333,333.30 Depreciation expense = Income tax rate $ 40% Tax savings 333333.3 * 40% 133333.32