Question

Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $810,000.The estimated market values of the purchased assets are building, $427,800; land, $241,,800; land improvements, $37,200; and four vehicles, $223,200

Compute the first year depreciation expense on the building using the straight line method,assuming a 15 year life and 31,000 salvage value(round nearest whole dollar)

Depreciation expense on building?

Answer 1

• Total estimated market values = 427800 + 241800 + 37200+ 223200= $ 930,000
• Market value of Building = $ 427,800
• Cost allocated to Building = $ 810000 lumpsum paid x $ 427800/ 930000
  = 810000 x 427800 / 930000
  = $ 372600
• Answer calculation:

A	Cost	$          372,600.00
B	Residual Value	$            31,000.00
C=A - B	Depreciable base	$          341,600.00
D	Life [in years]	15
E=C/D	Annual SLM depreciation	$            22,773.33

>First Year Depreciation Expense = $ 22,773.33 or $ 22,773 Answer