Kinlay Limited constructed a building at a cost of $2,000,000 and has occupied it since January 1995
It was estimated at that time that its life would be 45 years, with a residual value of $425,000.
In January 2005, an addition to the building was constructed at a cost of $750,000. At that time, no changes were expected in its useful life, but the residual value with the addition was estimated to increase by $225,000. The addition would not be of economic use to the company beyond the life of the original structure.
In 2023, as a result of a review of its depreciation policies, management determined that the building's original life should have been estimated at 40 years. They have also determined that the building and addition are unlikely to have any residual value at the end of the 40-year period.
Instructions
a) What amount of depreciation was charged annually for the years 1995 through 2004? (assume straight line depreciation) b) Calculate the annual depreciation that would have been charged from 2005 through 2022.
c) Prepare the entry, if necessary, to adjust the account balances for prior years because of the revision of
the estimated life in 2023.
d) What amount of depreciation should be charged for the year 2023. Show calculation.
