Tristen Company purchased a five-story office building on January 1, 2016, at a cost of $5,000,000. The buildinghas a residual value of $200,000 and a 30-year life. The straight-line depreciation method is used. On June 30,2018, construction of a sixth floor was completed at a cost of $1,650,000.Required:Calculate the depreciation on the building and building addition for 2018 and 2019 assuming that the addition didnot change the life or residual value of 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.
Tristen Company purchased a five-story office building on January 1, 2016, at a cost of $5,000,000. The building
has a residual value of $200,000 and a 30-year life. The
2018, construction of a sixth floor was completed at a cost of $1,650,000.
Required:
Calculate the depreciation on the building and building addition for 2018 and 2019 assuming that the addition did
not change the life or residual value of the building.
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