In 1987, Herman Moore Company completed the construction of a building at a cost
ID: 2420940 • Letter: I
Question
In 1987, Herman Moore Company completed the construction of a building at a cost of $4,840,000 and first occupied it in January 1988. It was estimated that the building will have a useful life of 40 years and a salvage value of $145,200 at the end of that time.
Early in 1998, an addition to the building was constructed at a cost of $1,210,000. 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 $48,400.
In 2016, it is determined that the probable life of the building and addition will extend to the end of 2047, or 20 years beyond the original estimate.
Annual depreciation from 1988 through 1997 = $117,370.00
Compute the annual depreciation that would have been charged from 1998 through 2015.
Compute the annual depreciation to be charged, beginning with 2016.
Explanation / Answer
Depreciation on original building = (4840000 - 145200)/40
= 117370
Depreciation on addition = (1210000 - 48400)/30
= 38720
Total annual depreciation from 1998 to 2015 = 117370 + 38720
= 156090
Annual depreciation to be charged from 2016 = (4840000 - 145200)/60 + (1210000 - 48400)/50
= 101478.66