Question

Revision of Depreciation

A building with a cost of $765,000 has an estimated residual value of $153,000, has an estimated useful life of 36 years, and is depreciated by the straight-line method.

a. What is the amount of the annual depreciation?
$fill in the blank 1
17,000

b. What is the book value at the end of the twentieth year of use?
$fill in the blank 2

c. If at the start of the twenty-first year it is estimated that the remaining life is 20 years and that the residual value is $25,000, what is the depreciation expense for each of the remaining 20 years?
$fill in the blank 3

Answer 1

1. The annual depreciation expense is $17,000.
2. The book value at the end of the twentieth year of use is $425,000.
3. The depreciation expense for each of the remaining 20 years is $20,000.

What is the annual depreciation expense?

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

Annual depreciation = ($765,000 - $153,000) / 36 = $17,000

Book value in the 20th year = cost of the asset - accumulated depreciation

765,000 - (17,000 x 20) = $425,000

Depreciation expense for each of the 20 years = (book value - new residual value) / new useful life

(425,000 - $25,000) / 20 = $20,000

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