The Perkins Construction Company bought abuilding for $800,000 to be used as a warehouse.A number of major structural repairs completedat the beginning of the current year at a cost of$125,000 are expected to extend the life of the building 10 years beyond the original estimate. For bookpurposes, the building has been depreciated by thestraight-line method for 25 years. The salvage valueis expected to be negligible and has been ignored.The book value of the building before the structuralrepairs is $400,000.(a) What has the amount of annual depreciationbeen in past years?(b) What is the book value of the building after therepairs have been recorded?(c) What is the amount of depreciation for the current year, according to the straight-line method?(Assume that the repairs were completed at thevery beginning of the year.)(d) For tax purposes, what is the amount of depreciation for the current year, assuming thatthe building belongs to a 39-year real propertyclass?
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.
The Perkins Construction Company bought a
building for $800,000 to be used as a warehouse.
A number of major structural repairs completed
at the beginning of the current year at a cost of
$125,000 are expected to extend the life of the building 10 years beyond the original estimate. For book
purposes, the building has been
straight-line method for 25 years. The salvage value
is expected to be negligible and has been ignored.
The book value of the building before the structural
repairs is $400,000.
(a) What has the amount of annual depreciation
been in past years?
(b) What is the book value of the building after the
repairs have been recorded?
(c) What is the amount of depreciation for the current year, according to the straight-line method?
(Assume that the repairs were completed at the
very beginning of the year.)
(d) For tax purposes, what is the amount of depreciation for the current year, assuming that
the building belongs to a 39-year real property
class?
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