At the beginning of 2011, Robotics Inc. acquired a manufacturing facility for $1

Question

At the beginning of 2011, Robotics Inc. acquired a manufacturing facility for $12.7 million. $9.7 million of the purchase price was allocated to the building. Depreciation for 2011 and 2012 was calculated using the straight-line method, a 25-year useful life, and a $1.7 million residual value. In 2013, the estimates of useful life and residual value were changed to 20 years and $570,000, respectively.

What is depreciation on the building for 2013? (Enter your answer in whole dollars.)

At the beginning of 2011, Robotics Inc. acquired a manufacturing facility for $12.7 million. $9.7 million of the purchase price was allocated to the building. Depreciation for 2011 and 2012 was calculated using the straight-line method, a 25-year useful life, and a $1.7 million residual value. In 2013, the estimates of useful life and residual value were changed to 20 years and $570,000, respectively.

Explanation / Answer

The depreciation amount has to be re evaluated as follows:

Firstly the WDV at the beginning of 2012

=$9.7 million -(9.7-1.7)million*2/25[Depreciation for 2011 and 2012]

=$9.7 million-0.64 million

=$9.06 million

Now Depreciation is to be allocated for 20 years and residual value $570000

Hence Depreciation for 2013=$(9060000-570000)/20

=$424500

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