How much is the loss on the retirement of the old building? b. What would be the capitalized cost of the new building? c. What would be the depreciation expense per year for the building? d. Assuming that a new wing was constructed 5 years later for a total cost of P1,000,000 and it's expected to have a useful life of 15 years, how much would the depreciation expense per year be from the building?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
ABC acquired for a lumpsum price of P6,000,000 a piece of land and the building on it. The land and building have fair values of P4,2000,000 and P2,800,000 respectively. The building is still usable but the entity plans to demolish it and construct a new building. Later, total demolition cost incurred was P400,000 but scraps were gathered and sold for P50,000. The new building had a total construction cost of P7,000,000, useful life of 25 years, and a salvage value of P500,000.
a. How much is the loss on the retirement of the old building?
b. What would be the capitalized cost of the new building?
c. What would be the
d. Assuming that a new wing was constructed 5 years later for a total cost of P1,000,000 and it's expected to have a useful life of 15 years, how much would the depreciation expense per year be from the building?
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