This question relates to Accounting Practices: Can someon please explain the use

Question

This question relates to Accounting Practices:

Can someon please explain the use of months in the problem and solution below. I'm having a hard time understanding why the 8/12 after the basic equation of (cost of building - residual value/useful life)

Problem Recording lump sum asset purchases, depreciation, and disposals Gretta Chung Associates surveys American eating habits. The company's accounts include Land, Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated Depreciation account for each asset. During 2014, Gretta Chung completed the following transactions: Jan. Purchased office equipment, $119,000. Paid $80,000 cash and financed the remaining 1 with a note payable Acquired land and communication equipment in a lump-sum purchase. Total cost was Apr. $270,000 paid in cash. An independent appraisal valued the land at $212,625 and the communication equipment at $70,875 Sold a building that cost $555,000 (accumulated depreciation of $255,000 through Sep. l December 31 of the preceding year). Chung received $370,000 cash from the sale of 1 the building. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of $75,000. Recorded depreciation as follows: Communication equipment is depreciated by the straight-line method over a five-year Dec life with zero residual value. 31 Office equipment is depreciated using the double-declining-balance method over five years with a $2,000 residual value. Record the transactions in the journal of Gretta Chung Associates

Explanation / Answer

The transaction begin on Jan1 and ended on Sep1 (since the building is sold).

So, the time period = 8 months for the whole transaction.

Since, useful life of the building is given in years, hence to convert this 8months into year i.e 8/12, 8/12 is multiplied.

12 months = 1 year

8 months = 8/12 year

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