Question

In 1998 Crane Company completed the construction of a building at a cost of 2,025,000 and first occupied it in January 1999. 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 2009, an addition to the building was constructed at a cost of 505,000. A 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 20,250.

In 2027, it is determined that the probable life of the building and addition will extend to the end of 2058, or 20 years beyond the original estimate.
a. using straight line method, compute the annual depreciation that would be charged from 1999 to 2008
b. compute the annual depreciation that would be charged from 2008 through 2026
d. compute the annual depreciation to the charged beginning with 2027

Answer 1

a. The annual depreciation charged from 1999 to 2008 using the straight-line method is $49,125. b. The annual depreciation charged from 2008 through 2026 is $82,333.33. c. The annual depreciation charged beginning with 2027 is $27,444.44.

Step-by-step explanation:

a. To compute the annual depreciation from 1999 to 2008 using the straight-line method, we first need to calculate the depreciable cost of the building. The depreciable cost is the original cost minus the salvage value. In this case, the depreciable cost is $2,025,000 - $60,000 = $1,965,000. The useful life of the building is 40 years, so the annual depreciation can be calculated as the depreciable cost divided by the useful life.

Annual depreciation = Depreciable cost / Useful life = $1,965,000 / 40 = $49,125

b. To compute the annual depreciation from 2008 through 2026, we need to consider the addition to the building as well. The depreciable cost of the addition is $505,000. The total depreciable cost is the sum of the depreciable cost of the building and the depreciable cost of the addition.


The remaining useful life of the building is 30 years, so the annual depreciation can be calculated as the total depreciable cost divided by the remaining useful life.


Total depreciable cost = Depreciable cost of building + Depreciable cost of addition = $1,965,000 + $505,000 = $2,470,000


Annual depreciation = Total depreciable cost / Remaining useful life = $2,470,000 / 30 = $82,333.33

c. To compute the annual depreciation beginning with 2027, we need to adjust for the extension of the building's life. The remaining useful life of the building and addition is now 20 years beyond the original estimate, so the new remaining useful life is 40 + 30 + 20 = 90 years.


The total depreciable cost remains the same at $2,470,000. The annual depreciation can be calculated as the total depreciable cost divided by the new remaining useful life.



Annual depreciation = Total depreciable cost / New remaining useful life = $2,470,000 / 90 = $27,444.44