A building acquired at the beginning of the year at a cost of $1,800,000 has an estimated residual value of $200,000 and an estimated useful life of 20 years. Determine the following:

Question

Line Item Description Amount
(a) The depreciable cost $fill in the blank 1

(b) The straight-line rate fill in the blank 2
%
(c) The annual straight-line depreciation

Answer 1

To determine the required values, we can use the following formulas for depreciation:

1. Depreciable Cost: This is calculated as the cost of the asset minus the residual value.
2. Straight-Line Rate: This is calculated as \( \frac{1}{\text{Useful Life}} \).
3. Annual Straight-Line Depreciation: This is calculated as \( \frac{\text{Depreciable Cost}}{\text{Useful Life}} \).

Given the information:

• Cost of the building = $1,800,000
• Residual value = $200,000
• Useful life = 20 years

Let's calculate each item:

(a) Depreciable Cost

\[ \text{Depreciable Cost} = \text{Cost} - \text{Residual Value} \] \[ \text{Depreciable Cost} = 1,800,000 - 200,000 = 1,600,000 \] Fill in the blank 1: $1,600,000

(b) Straight-Line Rate

\[ \text{Straight-Line Rate} = \frac{1}{\text{Useful Life}} \] \[ \text{Straight-Line Rate} = \frac{1}{20} = 0.05 \text{ or } 5% \] Fill in the blank 2: 5%

(c) Annual Straight-Line Depreciation

\[ \text{Annual Straight-Line Depreciation} = \frac{\text{Depreciable Cost}}{\text{Useful Life}} \] \[ \text{Annual Straight-Line Depreciation} = \frac{1,600,000}{20} = 80,000 \] Annual straight-line depreciation: $80,000

Summary

• (a) The depreciable cost: $1,600,000
• (b) The straight-line rate: 5%
• (c) The annual straight-line depreciation: $80,000