At the beginning of 2014, Robotics Inc. acquired a manufacturing facility for $1

Question

At the beginning of 2014, Robotics Inc. acquired a manufacturing facility for $13.3 million. $10.3 million of the purchase price was allocated to the building. Depreciation for 2014 and 2015 was calculated using the straight-line method, a 25-year useful life, and a $2.3 million residual value. In 2016 the company switched to the double-declining-balance depreciation method.

What is depreciation on the building for 2016? (Do not round intermediate calculations. Enter your answer in whole dollars.)

At the beginning of 2014, Robotics Inc. acquired a manufacturing facility for $13.3 million. $10.3 million of the purchase price was allocated to the building. Depreciation for 2014 and 2015 was calculated using the straight-line method, a 25-year useful life, and a $2.3 million residual value. In 2016 the company switched to the double-declining-balance depreciation method.

Explanation / Answer

Answer:

Cost allocated to Building = $10,300,000
Salvage Value = $2,300,000
Depreciation per year = (Cost – Salvage Value) / Useful Life
Depreciation per year = (10,300,000 – 2,300,000) / 25
Depreciation per year = $8,000,000/25
Depreciation per year = $320,000

Depreciation for the year 2014 & 2015 = $320,000 * 2
Depreciation for the year 2014 & 2015 = $640,000

Remaining Life of Building on the date of Change = 25 year – 2 years = 23 years
Cost on the date of Change = $10,300,000 - $640,000
Cost on the date of Change = $9,660,000

Double Declining Depreciation Rate = 2 * 1/ useful Life
Double Declining Depreciation Rate = 2 * 1/23 = 2/23

Depreciation on Building for 2016 = $9,660,000 * 2/23
Depreciation on Building for 2016 = $840,000

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