In 1990, Culver Company completed the construction of a building at a cost of $2
ID: 2591054 • Letter: I
Question
In 1990, Culver Company completed the construction of a building at a cost of $2,140,000 and first occupied it in January 1991. It was estimated that the building will have a useful life of 40 years and a salvage value of $64,200 at the end of that time. Early in 2001, an addition to the building was constructed at a cost of $535,000. 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 $21,400. In 2019, it is determined that the probable life of the building and addition will extend to the end of 2050, or 20 years beyond the original estimate Compute the annual depreciation that would have been charged from 2001 through 2018.
Explanation / Answer
Depreciation per year from 1991 to 2000 = (Cost - Salvage Value) / Useful life of asset
.................................................................= ($2,140,000 - $64,200) / 40 years
.................................................................= $51,895
Carrying Value at the end of 2000 = $2,140,000 - ($51,895 x 10 years)
.......................................................= $1,621,050
Depreciation per year from 2001 to 2018 = [($2,140,000 - $64,200) / 40 years] + [($535,000 - $21,400) / 30 years]
..................................................................= $51,895 + $17,120
..................................................................= $69,015
Year Depreciation Expense 1991 $51,895 1992 $51,895 1993 $51,895 1994 $51,895 1995 $51,895 1996 $51,895 1997 $51,895 1998 $51,895 1999 $51,895 2000 $51,895 2001 $69,015 2002 $69,015 2003 $69,015 2004 $69,015 2005 $69,015 2006 $69,015 2007 $69,015 2008 $69,015 2009 $69,015 2010 $69,015 2011 $69,015 2012 $69,015 2013 $69,015 2014 $69,015 2015 $69,015 2016 $69,015 2017 $69,015 2018 $69,015