Question

E11.12 (LO 1, 2) (Depreciation Computation—Addition, Change in Estimate) In 1993, Herman Moore Company completed the...

E11.12 (LO 1, 2) (Depreciation Computation—Addition, Change in Estimate) In 1993, Herman Moore Company completed the construction of a building at a cost of $2,000,000 and first occupied it in January 1994. It was estimated that the building will have a useful life of 40 years and a salvage value of $60,000 at the end of that time.

Early in 2004, an addition to the building was constructed at a cost of $500,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $20,000.

In 2022, it is determined that the probable life of the building and addition will extend to the end of 2053, or 20 years beyond the original estimate.

Instructions

a.   Using the straight-line method, compute the annual depreciation that would have been charged from 1994 through 2003.

b.   Compute the annual depreciation that would have been charged from 2004 through 2021.

c.   Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2022.

d.   Compute the annual depreciation to be charged, beginning with 2022.

e. Under IFRS, what would adjustment be on Jan. 1, 2019 if the fair value is 1,250,000 and what should 2019 depreciation be?

Business   Accounting   
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Homework Answers

Answer #1

A)

Annual depreciation = (2000000-60000)/40years

= $48,500

b) Computation of annual depreciation from 2004 -2021:

Annual depreciation in a requirement 48500
Annual depreciation of additional building (500000-20000)/30years 16000
Annual depreciation 2004 - 2021: 64500

3)

No-entry required for the year 2022.

4)

Annual depreciation of original building (642000-60000)/32 years 18188
Annual depreciation of an additional building (212000-20000)/32years 60000
Annual depreciation from 2022: 24,188

*(1994 to 2021) = 28 years

(48500*28)=1358000

(2000000-1358000) = 642000

(2022 to 2053) = 32 years

**

(2004 to 2021) = 18years

(16000*18)=288000

(500000-288000)=212000

(2022 to 2053) = 32 years

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