Answer:
The depreciation on the building and building addition for 2021 and 2022 are: $336,500 and $376,500 respectively.
Explanation:
<em>The requirement of the question should be to calculate the depreciation on the building and building addition for </em><u><em>2021 and 2022</em></u><em> since there was no information relating to </em><u><em>2016 and 2017</em></u><em> in the question.</em>
Straight-line depreciation is allocating uniform cost of the asset based on the useful life as a result of wear and tear. It is calculated using the formula below:
Depreciation = (Cost - Residual Value) / Use Life
Depreciation = ($9,400,000 - $505,000) / 30 years = $296,500 yearly depreciation charge
For 2019 and 2020, the accumulated depreciation would be $296,500 x 2 years = $593,000. Meanwhile for 6 months of 2021 (January - June), the depreciation expense is $296,500 x 0.5 = $148,250.
Therefore, accumulated depreciation prior to the addition was $741,250 ($593,000 +$148,250).
Addition to the building treatment:
The net book value of the existing building is $9,400,000 - $741,250 = $8,658,750 and the remaining useful life is 27.5 years.
Factoring the addition would give: $8,658,750 + $2,200,000 = $10,858,750
Depreciation = ($10,858,750 - $505,000) / 27.5 years = $376,500 yearly
For the remaining 6 months of 2021, depreciation expense is $376,500 x 0.5 = $188,250. Therefore, total depreciation expense for 2021 is $148,250 + $188,250 = $336,500.
For 2022, $376,500 yearly depreciation expense above applies.
