Question

At the beginning of 2019, Robotics Inc. acquired a manufacturing facility for $13.8 million. $10.8 million of the purchase price was allocated to the building. Depreciation for 2019 and 2020 was calculated using the straight-line method, a 20-year useful life, and a $2.8 million residual value. In 2021, the estimates of useful life and residual value were changed to 15 total years and $680,000, respectively.

What is depreciation on the building for 2021? (Round answer to the nearest whole dollar.)
  

Answer 1

Solution :

Depreciation on the building for 2021

$ 716,923

Working :

Step 1 : Depreciation for 2019 and 2020 :

Depreciation as per Straight Line Method = (Original Cost - Residual Value) / Useful Life

= ($ 10,800,000 - $ 2,800,000) / 20

   = $ 400,000 Yearly

Step 2: Carrying Value at the Beginning of Year 2021  :

Original Cost	$ 10,800,000
Less : Accumulated Depreciation ($ 400,000 * 2 Year)	$ 800,000
Carrying Value at the beginning of 2021	$ 10,000,000

Step 3 : Depreciation for 2021 :

Depreciation = (Carrying Value - Revised Estimated Residual Value) / Revised Remaining Useful Life

= ($ 10,000,000 - $ 680,000) / 13 Years

= $ 9,320,000 / 13 Years

= $ 716,923

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