On March 31, 2018, Susquehanna Insurance purchased an office building for $11,40

Question

On March 31, 2018, Susquehanna Insurance purchased an office building for $11,400,000. Based on their relative fair values, one-third of the purchase price was allocated to the land and two-thirds to the building. Furniture and fixtures were purchased separately from office equipment on the same date for $1,340,000 and $840,000, respectively. The company uses the straight-line method to depreciate its buildings and the double-declining-balance method to depreciate all other depreciable assets. The estimated useful lives and residual values of these assets are as follows: Service Life Residual Value Building 30 10% of cost Furniture and fixtures 10 10% of cost Office equipment 5 $44,000 Required: Calculate depreciation for 2018 and 2019. (Do not round intermediate calculations.)

Explanation / Answer

On the portion of land we will not charge Depreciation.

Buliding portion=2/3*11400000=7600000

In the double declining method of depreciation we don't sub tract salvage value. Hence salvage or Residual value does not effect calculation.

Particular office building furniture office equipment Cost(a) 7600000 1340000 840000 Life(b) 30 10 5 Rate of depreciation c=(100/b)*2 6.6666666% 20% 40% Depreciation for 2018(c*a) =d 506666.67 268000 336000 Value at beginning of 2019(a-d)=e 7093333.33 1072000 504000 Depreciation for 2019(e*c) 472888.88 214400 201600

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