Bright Horizons Skilled Nursing Facility, an investor-owned company, constructed

Question

Bright Horizons Skilled Nursing Facility, an investor-owned company, constructed a new building to replace its outdated facility. The new building was completed on January 1, 2015, and Bright Horizons began recording depreciation immediately. The total cost of the new facility was $18,000,000, comprising (a) $10 million in construction costs and (b) $8 million for the land. Bright Horizons estimated that the new facility would have a useful life of 20 years. The salvage value of the building at the end of its useful life was estimated to be $1,500,000. Using the straight-line method of depreciation, calculate annual depreciation expense on the new facility.

Explanation / Answer

Solution:

Given data:

* $10 million in construction cost

*$8 million for land

*salvage value = $15,00,000

*Estimated life = 20 years

Note:

Land is a Fixed Asset it is not depreciable .

Computation of nnual depreciation for Using straight-line method -

Formula:

Annual Depreciation = cost - Salvage value / Estimated life

= ($100,00,000-$15,00,0000 /20

= $4,25,000 per year

Therefore Annual depreciation = $4,25,000 per year .

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