Question

At the beginning of 2016, robotics inc. acquired a manufacturing facility for $12 million. $9 million of the purchase price was allocated to the building. depreciation for 2016 and 2017 was calculated using the straight-line method, a 25-year useful life, and a $1 million residual value. in 2018, the company switched to the double-declining-balance depreciation method. what is depreciation on the building for 2018

Answer 1

Answer:

$667,826

Explanation:

Straight Line depreciation is a method of depreciation in which the cost of the asset net of residual value is divided over useful life.

As per given data

Cost of building = $9,000,000

Residual Value = $1,000,000

Useful life = 25 years

Depreciation per year = ($9,000,000 - $1,000,000 ) / 25 years = $320,000

Net Book Value at beginning of 2018 = $9,000,000 - $320,000 = $8,680,000

Switched to Double Declining Method

In double declining method the double depreciation is charged on the asset's book value at the beginning of the year. The Depreciation is accelerated in this method.

Depreciation for 2018 = 2 x (Asset's book value at the beginning of the year - Salvage Value ) / Numbers of Useful life remaining

Depreciation for 2018 = 2 x ($8,680,000 - $1,000,000 ) / (25 - 2)

Depreciation for 2018 = 2 x ($8,680,000 - $1,000,000 ) / (25 - 2)

Depreciation for 2018 = $667,826