Question

At the beginning of 2019, Robotics Inc. acquired a manufacturing facility for $13.5 million. $10.5 million of the purchase price was allocated to the building. Depreciation for 2019 and 2020 was calculated using the straight-line method, a 25-year useful life, and a $2.5 million residual value. In 2021, the estimates of useful life and residual value were changed to 20 total years and $650,000, respectively. What is depreciation on the building for 2021

Answer 1

Answer:

$511,667

Explanation:

The computation of the depreciation expense for 2019 and 2020 is shown below:

= (Purchase price - residual value) ÷ (useful life)

= ($10,500,000 - $2,500,000) ÷ (25 years)

= ($8,000,000) ÷ (25 years)  

= $320,000

The depreciation in this method is the same for the rest of the useful life

Now the book value for 2021 would be

= Purchase price - depreciation for 2 years

= $10,500,000 - $320,000 × 2

= $9,860,000

Now the depreciation for 2021 would be

= ($9,860,000 - $650,000) ÷ 18 years

= $511,667

Answer 2

Based on the information given the depreciation on the building for 2021  

is:  $511,667.

First step

Depreciation for 2019 and 2020  

Depreciation as per Straight Line Method = (Original Cost - Residual Value) / Useful Life

Depreciation as per Straight Line Method = ($ 10,500,000 - $ 2,500,000) / 25

Depreciation as per Straight Line Method =$320,000  

Second step

Carrying Value at the Beginning of Year 2021  

Original Cost $ 10,500,000

Less : Accumulated Depreciation $640,000

($320,000 ×2 Year)

Carrying Value at the beginning of 2021 $9,860,000

Third step

Depreciation for 2021  

Depreciation = (Carrying Value - Revised Estimated Residual Value) / Revised Remaining Useful Life

Depreciation = ($9,860,000 - $ 650,000) / 18 Years

Depreciation = $ 9,210,000 / 18 Years

Depreciation = $511,667

Inconclusion the depreciation on the building for 2021  is:  $511,667.

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