Question

Sheffield Company constructed a building at a cost of $2,332,000 and occupied it beginning in January 1998. It was estimated at that time that its life would be 40 years, with no salvage value. In January 2018, a new roof was installed at a cost of $318,000, and it was estimated then that the building would have a useful life of 25 years from that date. The cost of the old roof was $169,600.
What amount of depreciation should be charged for the year 2018? Assume the cost of the new roof is debited to accumulated depreciation - building.

Please show your work. Thank you.

Answer 1

Depreciation on building occupied on 1998 = $2,332,000 / 40 years = $58,300

Cost of old roof = $169,600

Less: Accumulated Depreciation ($169,600 * 20/40) = $84,800

Loss on disposal of old roof = 84,800

Book value of Building prior to replacement of roof = $1,166,000

[$2,332,000 - ($58,300*20)]

Cost of new roof = $318,000

Net cost of Building ($1,116,000 + 318,000) = $1,434,000

Remaining usefull life = 25 years

Depreciation for 2018 ($1,434,000 /25 years) = $57,360