Question

Tristen Company purchased a five-story office building on January 1, 2019, at a cost of $5,000,000. The building has a residual value of $200,000 and a 30-year life. The straight-line depreciation method is used. On June 30, 2021, construction of a sixth floor was completed at a cost of $1,650,000.

Required:
Calculate the depreciation on the building and building addition for 2018 and 2019 assuming that the addition did not change the life or residual value of the building.

Answer 1

Depreciation expense on Building

Depreciation expense per annum under straight line method = (Cost - Residual value) / Useful life

= ($5,000,000 - $200,000) / 30

= $4,800,000 / 30

= $160,000

Depreciation expense for 2018 = $160,000

Depreciation expense for 2019 = $160,000

Depreciation expense on Building addition

Useful life = 30.00 years - 2.50 years = 27.50 years

Depreciation expense per annum under straight line method = (Cost - Residual value) / Useful life

= ($1,650,000 - $0) / 27.50

= $60,000

Depreciation expense for 2018 for 6 months = $60,000 * (6/12) = $30,000

Depreciation expense for 2019 = $60,000