Question

Straight-line depreciation A building acquired at the beginning of the year at a cost of $1,800,000 has an estimated residual value of $200,000 and an estimated useful life 20 years. Determine the following: (a) The depreciable cost (b) The straight-line rate (c) The annual straight-line depreciation

Answer 1

(a) The depreciable cost:
The depreciable cost is the initial cost of the building minus the estimated residual value. In this case, it would be $1,800,000 - $200,000 = $1,600,000.

(b) The straight-line rate:
The straight-line rate is calculated by dividing the depreciable cost by the estimated useful life. So, $1,600,000 / 20 years = $80,000 per year.

(c) The annual straight-line depreciation:
The annual straight-line depreciation is simply the straight-line rate. So, the annual straight-line depreciation would be $80,000.