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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Revision of depreciation

A building with a cost of $1,200,000 has an estimated residual value of $250,000, has an estimated useful life of 40 years, and is depreciated by the straight-line method. (a) What is the amount of the annual depreciation? (b) What is the book value at the end of the twenty-eighth year of use? (c) If at the start of the twenty-ninth year it is estimated that the remaining life is 10 years and that the residual value is $180,000, what is the depreciation expense for each of the remaining 10 years?

(a)

To determine

Straight-line Depreciation: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the salvage value is shown as below:

Depreciation cost = (Original cost of the asset-residual value)Estimated useful life of the asset

To determine: the amount of annual depreciation.

Explanation

Determine the amount of annual depreciation.

Cost of the equipment =$1,200,000

Estimated residual Value =$250,000

Estimated useful life =40 years

AnnualDepreciation = (Original cost of the asset-residual value)Estimated useful life of the asset

(b)

To determine
the book value at the end of the twenty-eighth year of use.

(c)

To determine
the revised annual depreciation for each of the remaining 10 years.

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