On January 1, Mitzu Company pays a lump-sum amount of $2,800,000 for land, Building 1, Building 2, and Land Improvements 1. Building 1 has no value and will be demolished. Building 2 will be an office and is appraised at $660,000, with a useful life of 20 years and a $75,000 salvage value. Land Improvements 1 is valued at $480,000 and is expected to last another 16 years with no salvage value. The land is valued at $1,860,000. The company also incurs the following additional costs. Cost to demolish Building 1 Cost of additional land grading Cost to construct Building 3, having a useful life of 25 years and a $402,000 salvage value Cost of new Land Improvements 2, having a 20-year useful life and no salvage value $ 348,400 189,400 2,242,000 178,000
On January 1, Mitzu Company pays a lump-sum amount of $2,800,000 for land, Building 1, Building 2, and Land Improvements 1. Building 1 has no value and will be demolished. Building 2 will be an office and is appraised at $660,000, with a useful life of 20 years and a $75,000 salvage value. Land Improvements 1 is valued at $480,000 and is expected to last another 16 years with no salvage value. The land is valued at $1,860,000. The company also incurs the following additional costs. Cost to demolish Building 1 Cost of additional land grading Cost to construct Building 3, having a useful life of 25 years and a $402,000 salvage value Cost of new Land Improvements 2, having a 20-year useful life and no salvage value $ 348,400 189,400 2,242,000 178,000
Chapter11: Long-term Assets
Section: Chapter Questions
Problem 7MC: Depreciation of a plant asset is the process of ________. A. asset valuation for statement of...
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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On January 1, Mitzu Company pays a lump-sum amount of $2,800,000 for land, Building 1, Building 2, and Land
Improvements 1. Building 1 has no value and will be demolished. Building 2 will be an office and is appraised at $660,000,
with a useful life of 20 years and a $75,000 salvage value. Land Improvements 1 is valued at $480,000 and is expected to
last another 16 years with no salvage value. The land is valued at $1,860,000. The company also incurs the following
additional costs.
Cost to demolish Building 1
Cost of additional land grading
Cost to construct Building 3, having a useful life of 25 years and a $402,000 salvage value
Cost of new
Land Improvements 2, having a 20-year useful life and no salvage value
$ 348,400
189,400
2,242,000
178,000
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