Question

In 1990, Tamarisk Company completed the construction of a building at a cost of $2,420,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of $72,600 at the end of that time. Early in 2001, an addition to the building was constructed at a cost of $605,000. 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 $24,200. In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate.

Compute the annual depreciation to be charged, beginning with 2019. (Round answer to 0 decimal places, e.g. 45,892.)

Annual depreciation expense—building

Answer 1

SOLUTION

Annual depreciation expense- building = $29,267

Annual depreciation = (Purchase price - Salvage value) / Estimated useful life

= ($2,420,000-$72,600) / 40 years

= $58,685 per year

Depreciation on additions = ($605,000-$24,200) / 30 years = $19,360 per year

Particulars	Amount ($)
Building
Book value (2,420,000- (58,685*28years))	776,820
Less: Salvage value	(72,600)
	704,220
Remaining useful life	32 years
Annual depreciation	22,007
Addition
Book value ($605,000-(19,360*18years))	256,520
Less: Salvage value	(24,200)
	232,320
Remaining useful life	32 years
Annual depreciation	7,260

Annual depreciation expense- building = $22,007 + $7,260 = $29,267