Question

27. More Value has a building that was originally purchased for $200,000 on January 1, 2015. The company expected the building to have a useful life of 25 years with a $20,000 salvage value. At the beginning of 2020, the company revises its useful life to a total of 35 years with a $14,000 salvage value. If the company uses straight-line method to calculate depreciation, determine the following:

a. Accumulated depreciation to date

b. Book value at the beginning of 2020

c. Revised annual depreciation expense

Answer 1

(a)-Accumulated depreciation to date

Straight Line Depreciation = [Cost of the asset – Salvage Value] / Useful Life

= [$2,00,000 – 20,000] / 25 Years

= $7,200 per year

Accumulated depreciation to date = Depreciation per year x Number of years upto 2020

= $7,200 x 5 Years

= $36,000

“Accumulated depreciation to date = $36,000”

(b)-Book value at the beginning of 2020

Book value at the beginning of 2020 = Cost of the Asset – Accumulated depreciation to date

= $200,000 – 36,000

= $164,000

“Book value at the beginning of 2020 = $164,000”

(c)-Revised annual depreciation expense

Revised annual depreciation expense = [Book value at the beginning of 2020 – Revised Salvage Value] / Remaining Useful Life

= [$164,000 - $14,000] / 30 Years

= $5,000 per year

“Revised annual depreciation expense = $5,000 per year”