Question

In 1991, Pearl Limited completed the construction of a building at a cost of $2.25 million; it occupied the building in January 1992. It was estimated that the building would have a useful life of 40 years and a residual value of $450,000.

Early in 2002, an addition to the building was constructed at a cost of $1,070,000. At that time, no changes were expected in its useful life, but the residual value with the addition was estimated to increase by $170,000. The addition would not be of economic use to the company beyond the life of the original building.

In 2020, as a result of a thorough review of its depreciation policies, company management determined that the building’s original useful life should have been estimated at 30 years. The neighbourhood where the building is has been going through a renewal, with older buildings being torn down and new ones being built. Because of this, it is now expected that the company’s building and addition are unlikely to have any residual value at the end of the 30-year period. Pearl Limited follows IFRS for its financial statements.

Using the straight-line method, calculate the annual depreciation that was charged from 1992 through 2001.

Annual depreciation, 1992 through 2001

$enter the annual depreciation from 1992 through 2001 in dollars per year  / year

List of Accounts

Calculate the annual depreciation that was charged from 2002 through 2019.

Annual depreciation, 2002 through 2019

$enter the annual depreciation from 2002 through 2019 in dollars per year  / year

List of Accounts

Prepare the entry, if necessary, to adjust the account balances because the estimated useful life was revised in 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

List of Accounts

Calculate the annual depreciation to be charged beginning with 2020.

Annual depreciation, beginning with 2020

$enter the Annual depreciation, beginning with 2020 in dollars

List of Accounts

Repeat parts (a) through (d) assuming Pearl Limited prepares its financial statements using ASPE. The original estimate of the physical life of the building was 44 years, with a salvage value of $226,000. (Ignore the addition in early 2002.) In 2020, the estimated useful life and physical life were both revised to be 30 years, with no residual value/salvage value for the asset at the end of the 30-year period. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Annual depreciation, 1992 through 2001		$enter a dollar amount per year rounded to 0 decimal places  / year
Annual depreciation, 2002 through 2019		$enter a dollar amount per year rounded to 0 decimal places  / year

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Annual depreciation

$enter the Annual depreciation in dollars rounded to 0 decimal places