Answer:
*The revised annual depreciation charge from 2022 based on the changes are:
Building = $11,938
Warehouse = $7,785
*The depreciation to be posted in 2022 however is:
Building = -$26,758 (depreciation over stated and now adjusted to compensate for this)
Warehouse = $15,510
Explanation:
Depreciation is a means of technically writing off the wasting or otherwise utilized portion of an asset over time. It is a means of recognizing the wear and tear of an asset and obsolescence driven by changing technology over time.
A straight line depreciation method indicates that throughout the life of the Asset a uniform depreciation charge will be applied until the written down value equals zero or the projected Salvage Value.
The Salvage value is the value the business projects to dispose of the Asset after its useful life has been fully expired.
Pharoah Company
Building cost = $728,500
Year of acquisition = Jan 1 2014
Accumulated depreciation = $134,200
Years depreciated for = 8 years
Depreciation per year =>$134,200/ 8 = $16,775
Useful life = 40yrs
Old salvage value = $57,500
New useful life = 58 years
New Salvage Value = $36,100
Step 1. Determine the depreciable value from Original cost
= $728,500 minus $36,100 = $692,400
Step 2. Determine yearly depreciation charge over 58 years
= $692,400 divided by 58 = $11,938
Step 3. Determine what the depreciation should be up to 2022
= $11,938 x 9years = $107,442
Step 4. Deduct this from Depreciation charged to date to derive the depreciation for 2022.
= $107,442 minus $134,200 = -$26,758 (this implies the Asset had been over depreciated and this entry intends to correct its written down value)
B.
Warehouse cost = $161,500
Year of acquisition = Jan 1 2017
Accumulated depreciation = $31,200
Years depreciated for = 5 years
Depreciation per year =>$31,200/ 5 = $6,240
Useful life = 25yrs
Old salvage value = $5,500
New useful life = 20 years
New Salvage Value = $5,800
Step 1. Determine the depreciable value from Original cost
= $161,500 minus $5,800 = $155,700
Step 2. Determine yearly depreciation charge over 20 years
= $155,700 divided by 20 = $7,785
Step 3. Determine what the depreciation should be up to 2022
= $7,785 x 6years = $46,710
Step 4. Deduct this from Depreciation charged to date to derive the depreciation for 2022.
= $46,710 minus $31,200 = $15,510 (this will be the depreciation charge for 2022)
