In 1998, Novak Company completed the construction of a building at a cost of $2,500,000 and first occupied it in January 1999. It was estimated that the building will have a useful life of 40 years and a salvage value of $76,000 at the end of that time. Early in 2009, an addition to the building was constructed at a cost of $625,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $25,000. In 2027, it is determined that the probable life of the building and addition will extend to the end of 2058, or 20 years beyond the original estimate. (a) Using the straight-line method, compute the annual depreciation that would have been charged from 1999 through 2008. Annual depreciation from 1999 through 2008 $ GA /yr.

In 1998, Novak Company completed the construction of a building at a cost of $2,500,000 and first occupied it in January 1999. It was estimated that the building will have a useful life of 40 years and a salvage value of $76,000 at the end of that time. Early in 2009, an addition to the building was constructed at a cost of $625,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $25,000. In 2027, it is determined that the probable life of the building and addition will extend to the end of 2058, or 20 years beyond the original estimate. (a) Using the straight-line method, compute the annual depreciation that would have been charged from 1999 through 2008. Annual depreciation from 1999 through 2008 $ GA /yr.

Name: ### Scenario Analysis: Depreciation Calculation for Novak Company**Ba
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Description: ### Scenario Analysis: Depreciation Calculation for Novak Company**Background Information:**- **Initial Construction:** - In 1998, Novak Company completed a building at a cost of $2,500,000. - The building was first occupied in January 1999. - Es

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

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.

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Question

### Scenario Analysis: Depreciation Calculation for Novak Company

**Background Information:**

- **Initial Construction:**
- In 1998, Novak Company completed a building at a cost of $2,500,000.
- The building was first occupied in January 1999.
- Estimated useful life: 40 years.
- Estimated salvage value: $76,000.

- **Building Addition:**
- In early 2009, an addition was made to the building at a cost of $625,000.
- Remaining building life estimated an additional 30 years.
- Addition's useful life: 30 years.
- Addition's salvage value: $25,000.

- **Life Extension:**
- In 2027, it was determined that the building's life would extend to the end of 2058, or 20 years beyond the original estimate.

**Calculation Task:**

**(a) Depreciation Computation:**

- **Objective:** Use the straight-line method to calculate the annual depreciation from 1999 through 2008.

**Formula and Calculation Sample:**

1. **Straight-Line Depreciation Formula:**
\[
\text{Annual Depreciation} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}}
\]

2. **Insert Calculation Scenario:**
- Calculate the annual depreciation for the building using the formula, considering the initial 40-year useful life estimate.

**Note:**
Insert your answer for annual depreciation in the space provided on the document to complete the calculation exercise.

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