Question

Beckham Company constructed a warehouse for $280,000. Beckham estimates that the warehouse has a useful life of 20 years and no residual value. Construction records indicate that $50,000 of the cost of the warehouse relates to its heating, ventilation, and air conditioning (HVAC) system, which has an estimated useful life of only 10 years. Compute the first year of depreciation expense using straight-line component depreciation.

Answer 1

$16,500

Step-by-step explanation:

Straight line method of depreciation charges the same amount of depreciation on the asset over its useful life.

Depreciation Charge = Cost - Salvage Value / Number of Useful Life

Component Approach

Considers the depreciation charges separately of different components that make up total asset due to difference in number of useful life.

Warehouse :

Depreciation Charge = ($280,000 - $50,000) / 20 years

= $11,500

(HVAC) system :

Depreciation Charge = $50,000 / 10 years

= $5,000

Depreciation : First Year = Depreciation charge for Warehouse + Depreciation charge for (HVAC) system

=$11,500 + $5,000

=$16,500