Question

On March 31, 2018, Susquehanna Insurance purchased an office building for $11,700,000. Based on their relative fair values, one-third of the purchase price was allocated to the land and two-thirds to the building. Furniture and fixtures were purchased separately from office equipment on the same date for $1,350,000 and $850,000, respectively. The company uses the straight-line method to depreciate its buildings and the double-declining-balance method to depreciate all other depreciable assets. The estimated useful lives and residual values of these assets are as follows: - Service Life Residual Value Building 25 5% of cost Furniture and fixtures 10 5% of cost Office equipment 5 $45,000 Required : Calculate depreciation for 2018 and 2019

Answer 1

Answer:

2018:

building:                       296,400

Furniture and fixtures: 270,000

Office Equipment:        340,000  

Total:                             906,400

Explanation:

11,700,000 1/3 to land:                3,900,000

11,700,000 2/3 to building:         7,800,000

Office Equipment:                         204,000  

Total:                                           11,904,000

Building depreciation:

(historic cost - salvage value)/useful life

(7,800,000 - 7,800,000 x 5%)/25 = 296,400

As this is straight-line depreciation will be constant for both years.

Furniture and fixtures: double-declining

the assets depreciate at a rate double of straight line of the carrying value

carring value: 2/useful life

2018:          1,350,000         x 1/10 x 2 = 270,000

2019: (1,350,000-270,000) x 1/10 x 2 = 216,000

Office Equipment: double-declining

2018:           850,000          x 2/5 =  340,000

2019: (850,000 - 340,000) x 2/5 = 204,000